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Taxation of car ownership, car use and public transport: insights derived from a discrete choice numerical optimisation model

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Author Info

  • De Borger Bruno

    ()
    (University of Antwerp)

  • Mayeres Inge

    ()
    (Federal Planning Bureau, Brussels, Belgium and K.U.Leuven-Center for Economic Studies)

Abstract

In this paper we study the taxation of car ownership, car use and public transport in the presence of externalities within the framework of a discrete/continuous choice model. We first derive optimal taxes in a simplified setting, emphasizing the specific role of fixed car ownership taxes and the relevance of public transport demand by non-car owners for the optimal tax structure. A numerical optimisation model is then constructed to study welfareoptimal public transport fares and two-part tariffs on ownership and use of gasoline and diesel cars in Belgium. Results are as follows. First, we find that the current differences in tax treatment between diesel and gasoline car ownership and use cannot be justified on the basis of external cost and budgetary considerations. Efficient pricing requires substantial increases in the relative user tax on diesel cars as compared to gasoline cars; optimal fixed taxes are substantially below current levels and only marginally differ between car fuel types. Second, if for political or technical reasons variable car taxes cannot be optimally adjusted, large differences in fixed car taxes do result. The same holds if the government uses kilometre taxes as the main variable tax instrument. Third, the results of a series of marginal tax reform exercises suggest that a shift form gasoline towards diesel taxation is welfare improving, both for fixed and variable taxes. Somewhat surprisingly, a shift from fixed towards variable taxes is not necessarily welfare-improving: it is for diesel, but not for gasoline cars.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0413.

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Length: 50 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:ete:etewps:ete0413

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Keywords: transport externalities; optimal taxation; two-part tariffs;

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References

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Cited by:
  1. Stef Proost & Inge Mayeres, 2005. "Towards better transport pricing and taxation in Belgium," Energy, Transport and Environment Working Papers Series ete0504, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.

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