Assessment of CO2-Oriented Vehicle Tax Reforms: A Case Study of Greece
Vehicle taxation based on a car’s CO2 emission levels is increasingly adopted in countries around the world. This paper describes a model of oligopolistic competition in markets with differentiated products, simulating automobile demand and supply under alternative tax regimes. The objective is to perform simulations in order to evaluate policies that could shift consumer purchases towards low-CO2 cars and thus lead to the reduction of fuel use and CO2 emissions. Focusing on an analysis of the car market of Greece, we assess the environmental and economic implications of alternative carbon-based tax schemes. Our findings, which are relevant for other European countries as well, illustrate that careful policy design, supported by an appropriate model, can bring about substantial environmental benefits without losing control of economic parameters such as public finances or firm profits. In some cases vehicle taxation can have adverse (though unintended) environmental consequences.
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