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Externalities And Partial Tax Reform: Does It Make Sense To Tax Road Freight (But Not Passenger) Transport?

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  • Edward Calthrop
  • Bruno De Borger
  • Stef Proost
Abstract
ABSTRACT Externalities such as pollution and road congestion are jointly produced by the use of intermediate inputs by firms and the consumption of final goods by households. To cope with such externalities, policy proposals often suggest partial tax reforms. This paper uses a simple general equilibrium model to explore the effects of a reform of taxes on freight transport in a second‐best setting. The theoretical model shows that the welfare effect of higher freight taxes is positive, unless passenger transport is severely under‐taxed and the tax reform attracts substantially more passenger transport. Moreover, the optimal freight tax may be below or above marginal external cost. Budgetary neutral tax reform exercises with a numerical simulation model for the U.K. suggest that, under a wide variety of parameter values, higher freight transport taxes are indeed welfare increasing. The welfare gain of freight tax reform rises with the level of the passenger tax, but the optimal freight tax declines at higher taxes on passenger transport. Substantial net benefits of tax reform are obtained only under labor tax recycling of the revenues.

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  • Edward Calthrop & Bruno De Borger & Stef Proost, 2007. "Externalities And Partial Tax Reform: Does It Make Sense To Tax Road Freight (But Not Passenger) Transport?," Journal of Regional Science, Wiley Blackwell, vol. 47(4), pages 721-752, October.
    • Handle: RePEc:bla:jregsc:v:47:y:2007:i:4:p:721-752
    DOI: 10.1111/j.1467-9787.2007.00520.x
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    Cited by:

    1. Parry, Ian W.H., 2008. "How should heavy-duty trucks be taxed?," Journal of Urban Economics, Elsevier, vol. 63(2), pages 651-668, March.
    2. Proost, Stef & De Borger, Bruno & Koskenoja, Pia, 2007. "Chapter 3 Public finance aspects of transport charging and investments," Research in Transportation Economics, Elsevier, vol. 19(1), pages 59-80, January.
    3. Parry, Ian & Strand, Jon, 2012. "International fuel tax assessment: an application to Chile," Environment and Development Economics, Cambridge University Press, vol. 17(2), pages 127-144, April.
    4. Carling, Kenneth & Håkansson, Johan & Meng, Xiangli & Rudholm, Niklas, 2015. "The effects of taxing truck distance on CO2 emissions from transports in retailing," HUI Working Papers 111, HUI Research.
    5. Bruno De Borger & Bart Wuyts, 2009. "Commuting, Transport Tax Reform and the Labour Market: Employer-paid Parking and the Relative Efficiency of Revenue Recycling Instruments," Urban Studies, Urban Studies Journal Limited, vol. 46(1), pages 213-233, January.
    6. Guerrero, Sebastian E. & Madanat, Samer M. & Leachman, Robert C., 2013. "The Trucking Sector Optimization Model: A tool for predicting carrier and shipper responses to policies aiming to reduce GHG emissions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 85-107.
    7. Calthrop, Edward & De Borger, Bruno & Proost, Stef, 2010. "Cost-benefit analysis of transport investments in distorted economies," Transportation Research Part B: Methodological, Elsevier, vol. 44(7), pages 850-869, August.
    8. Borger, Bruno De, 2011. "Optimal congestion taxes in a time allocation model," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 79-95, January.
    9. Carling, Kenneth & Håkansson, Johan & Meng, Xiangli & Rudholm, Niklas, 2017. "The effect on CO2 emissions of taxing truck distance in retail transports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 47-54.
    10. Pérez-Martínez, P.J. & Vassallo-Magro, J.M., 2013. "Changes in the external costs of freight surface transport In Spain," Research in Transportation Economics, Elsevier, vol. 42(1), pages 61-76.
    11. Robin Lindsey, 2010. "Reforming Road User Charges: A Research Challenge For Regional Science," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 471-492, February.
    12. Yu, Haowei & Zhou, You, 2021. "Highway Spending and Induced Vehicle Emissions: Evidence from the US states," Resource and Energy Economics, Elsevier, vol. 65(C).

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    More about this item

    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
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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