Analysis of the effect of wealth taxes in overcoming the Jevons paradox

Abstract

Although energy efficiency and renewable energy are crucial tools for combating climate change, their use may inadvertently increase demand for energy and materials by reducing resource costs, a phenomenon known as the Jevons paradox or rebound effect. This study applies KRLS and adaptive LASSO to examine this issue in Turkey for 1985-2022. Two models are constructed with different dependent variables. The results confirm a strong rebound effect for energy efficiency for both models and analytical methods, whereas the rebound effect for renewable energy is only partially validated, and technological development has a limited rebound effect. The KRLS results indicate that wealth taxes reduce energy consumption across all percentiles and fossil fuel consumption per capita in the lower percentiles, while the adaptive LASSO results indicate a negative effect in both models. These findings suggest that wealth taxes may be an effective policy tool to counter the Jevons paradox and promote sustainable energy practices in Turkey. They are also a useful tool for creating a fairer tax system, reducing carbon-intensive production/consumption activities, and generating resources for renewable energy. International cooperation to reintroduce wealth taxes at higher rates will increase their effectiveness. Another key finding is that renewable energy is crucial to achieving zero-carbon targets. In Turkey, however, outdated renewable energy infrastructure and inefficient investments are hindering renewable energy implementation, which should be prioritized by redesigning Turkey's energy and fiscal policies.