The impact of company cars on car ownership

Amidst the current period of urgent and costly climate abatement policies being implemented, company cars as a fringe benefit receive surprisingly little attention from policy and research, despite evidence showing that they not only result in substantial welfare losses but also in increased car ownership and use. Therefore, this paper adds to the evidence on how company cars increase car use. We estimate how the possession of a company car impacts the households’ probability of possessing at least one car and the total car possession (the sum of privately owned and company cars). We use register micro-panel data, covering all households in Sweden, allowing us to study the effect of company cars in the full population while accounting for household-specific time-invariant unobserved preferences. It also allows us to study asymmetric effects of gaining versus losing a company car. We regress temporal changes in car possession on temporal changes in company car possession, applying a fixed effect (FE) estimator for single and couple households separately. A company car increases the probability of having at least one car in single and couple households by 38% and 14%, respectively. For couple households, we find a small asymmetric effect, such that the impact of the company car on car possession is slightly larger when the car is received than when it is lost. For single households the effect is symmetric. Moreover, a company car increases car possession by on average 0.26 cars for couple households possessing at least one car. Since roughly 80% of the mileage of these cars is attributed to private purposes in Sweden, these results indicate that the current company car taxation also increases car use.