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A revenue-neutral tax reform to increase demand for public transport services

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  • Barros, Carlos Pestana
  • Prieto-Rodriguez, Juan

Abstract

Transportation, energy and environmental tax reforms represent an ongoing debate in contemporary policy. The main aim of this paper is to shed some light on this debate using micro-simulation tools to analyse consumer response and welfare effects of environmental policy consisting of an increment of the indirect taxes on fuels to finance the elimination of VAT on the public means of transport. In order to do so, we first estimate an Almost Ideal Demand System for 16 different groups of goods in the Spanish economy, for the purpose of evaluating expenditure and price elasticities. Using this information, we then micro-simulate the abolition of VAT on public transport services and a simultaneous increment on fuel taxes, so that total revenue remains unchanged. The welfare effects of this revenue-neutral tax reform are evaluated. The aim of this simulation is to define a public policy that increases public transportation availability and use in order to bring about decreases in pollution and congestion.

Suggested Citation

  • Barros, Carlos Pestana & Prieto-Rodriguez, Juan, 2008. "A revenue-neutral tax reform to increase demand for public transport services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(4), pages 659-672, May.
    • Handle: RePEc:eee:transa:v:42:y:2008:i:4:p:659-672
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    2. Barros, Victor & Cruz, Carlos Oliveira & Júdice, Tomás & Sarmento, Joaquim Miranda, 2021. "Is taxation being effectively used to promote public transport in Europe?," Transport Policy, Elsevier, vol. 114(C), pages 215-224.
    3. Llorca, Manuel & Baños, José & Somoza, José & Arbués, Pelayo, 2014. "A latent class approach for estimating energy demands and efficiency in transport: An application to Latin America and the Caribbean," Efficiency Series Papers 2014/04, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    4. Tscharaktschiew, Stefan & Hirte, Georg, 2012. "Should subsidies to urban passenger transport be increased? A spatial CGE analysis for a German metropolitan area," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(2), pages 285-309.
    5. Cantos-Sánchez, Pedro & Gutiérrez-i-Puigarnau, Eva & Mulalic, Ismir, 2018. "The impact of scrappage programmes on the demand for new vehicles: Evidence from Spain," Research in Transportation Economics, Elsevier, vol. 70(C), pages 83-96.

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