The effectiveness and distributional consequences of excess profit taxes or windfall taxes in light of the Commission's recommendation to Member States

This study analyses the design and functioning of windfall profit taxes for energy suppliers in the EU. Based on profit data from 2021, the estimated revenue gains from the solidarity contribution amount to 4.4 bn EUR for the selected sample of firms. Applying the revenue cap to power prices of 2022 suggests a tax revenue of 106 bn EUR. The actual tax revenue might diverge substantially from these numbers due to different energy price levels during the application period. The revenue can be redistributed according to the Member States' priorities to face hardship of the energy crisis. Despite efficiency in theory, investment distortions might arise if investors expect the tax instrument to be extended to other sectors.

Nicolay, Katharina, Julia Spix, Daniela Steinbrenner and Nikolas Woelfing (2023), The effectiveness and distributional consequences of excess profit taxes or windfall taxes in light of the Commission's recommendation to Member States, Europäisches Parlament, Mannheim