We use station-level price data and a significant diesel fuel carbon tax reform to study who bears the economic burden of fuel carbon taxes. We use a difference-in-differences strategy to estimate the pass-through of the large carbon tax increase to retail prices, where we compare retail diesel prices faced by private motorists to retail gasoline prices. We find that on average fuel carbon taxes are less than fully passed through to consumer prices, which suggests that consumers and the supply chain split the burden of these taxes. Using information on station location, we match price observations with postcode-level average incomes and measures of urbanization, and show that there are significant differences in the pass-through rate across areal incomes and between rural and urban areas up to one year after the reform. The effect of fuel carbon taxes on consumer prices decreases with areal income and with the degree of urbanization.

This paper examines heterogeneity in the pass-through of a substantial diesel tax increase in Finland using stationand daily-level microdata. The estimated average pass-through rate is approximately 80% of the nominal tax increase. The pass-through rates differ across income groups, ranging from 90% in the lowest income septile to 76% in the highest income septile. These results suggest that fuel taxes are regressive. We also find evidence that the pass-through rate is larger in the most sparsely populated rural areas than in the most urban areas. Finally, we find evidence that the supply side anticipated the reform and filled up storage diesel tanks in the last months preceding the large diesel tax increase.