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

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  • DE BORGER, Bruno
  • MAYERES, Inge

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 welfare-optimal public transport fares and two-part tariffs on ownership and use of gasoline and diesel cars in Belgium. Results are as follows. First, the current differences in tax treatment between diesel and gasoline car ownership and car 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, implying a very large decrease in the tax on diesel cars. Second, large differences in fixed car taxes do result (i) if for political or technical reasons variable car taxes cannot be optimally adjusted, and (ii) if optimal taxes are implemented but 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.

Suggested Citation

  • DE BORGER, Bruno & MAYERES, Inge, "undated". "Taxation of car-ownership, car use and public transport: Insight derived from a discrete choice numerical optimisation model," Working Papers 2004021, University of Antwerp, Faculty of Applied Economics.
  • Handle: RePEc:ant:wpaper:2004021
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    References listed on IDEAS

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    Cited by:

    1. Benoît Laine & Alex Van Steenbergen, 2016. "Working Paper 03-16 - The fiscal treatment of company cars in Belgium: effects on car demand, travel behaviour and external costs," Working Papers 1603, Federal Planning Bureau, Belgium.
    2. Inge Mayeres & Stef Proost, 2004. "Towards better transport pricing and taxation in Belgium," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(4), pages 23-43.

    More about this item

    Keywords

    Transport externalities; Optimal taxation; Two-part tariffs;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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