The Impact of Tax Reform on New Car Purchases in Ireland
AbstractWe examine the impact of recent tax reforms in Ireland on private car transport and its greenhouse gas emissions. A carbon tax was introduced on fuels, and purchase (vehicle registration) and ownership (motor) taxes were switched from engine size to potential emissions. We use a demographic model of the car stock (by age, size, and fuel) and a car purchase model that reflects the heterogeneous distribution of mileage and usage costs across various engine sizes. The model shows a dramatic shift from petrol to diesel cars, particularly for large engines. The same pattern is observed in the latest data on car sales. This has a substantial impact on tax revenue as car owners shift to the lower tax rates. The tax burden has shifted from car ownership to car use, and that the overall tax burden on private car transport falls. As diesel engines are more fuel efficient than petrol engines, carbon dioxide emissions fall modestly or, if we consider the rebound effect of travel costs on mileage, minimally. From the perspective of the revenue, the costs per tonne of carbon dioxide avoided are (very) high.
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Bibliographic InfoPaper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP349.
Date of creation: Jul 2010
Date of revision:
Private car transport/Republic of Ireland/carbon dioxide emissions/fiscal policy/taxes/ireland/taxes/Ireland/Private car transport/transport/Car ownership/Carbon dioxide emissions;
Other versions of this item:
- Hennessy, Hugh & Tol, Richard S.J., 2011. "The impact of tax reform on new car purchases in Ireland," Energy Policy, Elsevier, vol. 39(11), pages 7059-7067.
- NEP-ALL-2010-08-06 (All new papers)
- NEP-ENE-2010-08-06 (Energy Economics)
- NEP-ENV-2010-08-06 (Environmental Economics)
- NEP-PBE-2010-08-06 (Public Economics)
- NEP-PUB-2010-08-06 (Public Finance)
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