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The Impact of Tax Reform on New Car Purchases in Ireland

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  • Hennessy, Hugh
  • Tol, Richard S. J.

Abstract

We 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.

Suggested Citation

  • Hennessy, Hugh & Tol, Richard S. J., 2010. "The Impact of Tax Reform on New Car Purchases in Ireland," Papers WP349, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp349
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    Cited by:

    1. Leinert, Stephan & Daly, Hannah & Hyde, Bernard & Gallachóir, Brian Ó, 2013. "Co-benefits? Not always: Quantifying the negative effect of a CO2-reducing car taxation policy on NOx emissions," Energy Policy, Elsevier, vol. 63(C), pages 1151-1159.
    2. Reyer Gerlagh & Inge van den Bijgaart & Hans Nijland & Thomas Michielsen, 2015. "Fiscal Policy and CO2 Emissions of New Passenger Cars in the EU," Working Papers 2015.32, Fondazione Eni Enrico Mattei.
    3. Fu, Miao & Andrew Kelly, J., 2012. "Carbon related taxation policies for road transport: Efficacy of ownership and usage taxes, and the role of public transport and motorist cost perception on policy outcomes," Transport Policy, Elsevier, vol. 22(C), pages 57-69.
    4. Dujuan Yang & Harry Timmermans & Aloys Borgers, 2016. "The prevalence of context-dependent adjustment of activity-travel patterns in energy conservation strategies: results from a mixture-amount stated adaptation experiment," Transportation, Springer, vol. 43(1), pages 79-100, January.
    5. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    6. Webster, Allan & Ayatakshi, Sukanya, 2013. "The effect of fossil energy and other environmental taxes on profit incentives for change in an open economy: Evidence from the UK," Energy Policy, Elsevier, vol. 61(C), pages 1422-1431.
    7. Dujuan Yang & Harry Timmermans & Aloys Borgers, 2016. "The prevalence of context-dependent adjustment of activity-travel patterns in energy conservation strategies: results from a mixture-amount stated adaptation experiment," Transportation, Springer, vol. 43(1), pages 79-100, January.
    8. repec:kap:enreec:v:69:y:2018:i:1:d:10.1007_s10640-016-0067-6 is not listed on IDEAS
    9. repec:eee:trapol:v:59:y:2017:i:c:p:75-81 is not listed on IDEAS
    10. Jiménez, Juan Luis & Perdiguero, Jordi & García, Carmen, 2016. "Evaluation of subsidies programs to sell green cars: Impact on prices, quantities and efficiency," Transport Policy, Elsevier, vol. 47(C), pages 105-118.
    11. Kok, Robert, 2015. "Six years of CO2-based tax incentives for new passenger cars in The Netherlands: Impacts on purchasing behavior trends and CO2 effectiveness," Transportation Research Part A: Policy and Practice, Elsevier, vol. 77(C), pages 137-153.
    12. Daly, Hannah E. & Ó Gallachóir, Brian P., 2011. "Modelling future private car energy demand in Ireland," Energy Policy, Elsevier, vol. 39(12), pages 7815-7824.

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    Keywords

    Private car transport/Republic of Ireland/carbon dioxide emissions/fiscal policy/taxes/ireland/taxes/Ireland/Private car transport/transport/Car ownership/Carbon dioxide emissions;

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