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Car User Taxes, Quality Characteristics, and Fuel Efficiency Household Behaviour and Market Adjustment

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  • Bruno De Borger
  • Jan Rouwendal

Abstract

We study the impact of car user taxes on vehicle quality and demand for kilometres. First, holding car prices fixed, we find that a higher fuel tax leads households to choose cars of better fuel efficiency, provided that the demand for car use is inelastic. Surprisingly, a higher kilometre tax reduces the demand for fuel efficiency. Next, we study how car prices react to the tax changes. Fuel taxes make owning very fuel-efficient cars more expensive, while reducing prices of cars of low fuel efficiency. Both fuel taxes and kilometre charges imply lower prices for large and powerful cars. © 2013 LSE and the University of Bath

Suggested Citation

  • Bruno De Borger & Jan Rouwendal, 2014. "Car User Taxes, Quality Characteristics, and Fuel Efficiency Household Behaviour and Market Adjustment," Journal of Transport Economics and Policy, University of Bath, vol. 48(3), pages 345-366, September.
    • Handle: RePEc:tpe:jtecpo:v:48:y:2014:i:3:p:345-366
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    Cited by:

    1. Fetene, Gebeyehu M. & Hirte, Georg & Kaplan, Sigal & Prato, Carlo G. & Tscharaktschiew, Stefan, 2016. "The economics of workplace charging," Transportation Research Part B: Methodological, Elsevier, vol. 88(C), pages 93-118.
    2. Mónica Meireles & Margarita Robaina & Daniel Magueta, 2021. "The Effectiveness of Environmental Taxes in Reducing CO 2 Emissions in Passenger Vehicles: The Case of Mediterranean Countries," IJERPH, MDPI, vol. 18(10), pages 1-13, May.
    3. Mulalic, Ismir & Rouwendal, Jan, 2015. "The impact of fixed and variable cost on automobile demand: Evidence from Denmark," Economics of Transportation, Elsevier, vol. 4(4), pages 227-240.
    4. Javier Asensio & Anna Matas & Josep-Lluís Raymond, 2025. "Policies to reduce cars’ emissions between the opposing forces of technological change and demand for characteristics," Working Papers wpdea2502, Department of Applied Economics at Universitat Autonoma of Barcelona.
    5. Tovar Reaños, Miguel A., 2020. "Initial incidence of carbon taxes and environmental liability. A vehicle ownership approach," Energy Policy, Elsevier, vol. 143(C).
    6. Tovar Reanos, Miguel, 2020. "Car ownership and the distributional and environmental policies to reduce driving behavior," Papers WP673, Economic and Social Research Institute (ESRI).
    7. De Borger, Bruno & Mulalic, Ismir & Rouwendal, Jan, 2016. "Substitution between cars within the household," Transportation Research Part A: Policy and Practice, Elsevier, vol. 85(C), pages 135-156.

    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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