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Tax Treatment of Commuter Cost

Author

Listed:
  • Vidar Christiansen
  • Odd E. Nygård
Abstract
The paper discusses the tax treatment of commuting where wages and housing cost vary across locations. An income tax distorts the locational choices of agents, who dislike commuting and have preferences for place of residence Wages, housing cost and commuting cost determine how subsidising or taxing commuting affects behaviour and social efficiency. A subsidy encourages commuting and induces agents to choose a more favourable living place. The analysis clarifies the circumstances in which the subsidy alleviates or exacerbates the tax distortions, also where housing is tax favoured, as is often the case. The distributional impact depends on the effects of wages on commuting. An empirical illustration based on Norwegian data shows how one can infer efficiency effects of responses to subsidies on commuting.

Suggested Citation

  • Vidar Christiansen & Odd E. Nygård, 2024. "Tax Treatment of Commuter Cost," CESifo Working Paper Series 11080, CESifo.
    • Handle: RePEc:ces:ceswps:_11080
    as

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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp11080.pdf
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    References listed on IDEAS

    as
    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 21-30.
    2. Wrede, Matthias, 2001. "Should Commuting Expenses Be Tax Deductible? A Welfare Analysis," Journal of Urban Economics, Elsevier, vol. 49(1), pages 80-99, January.
    3. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 38(2), pages 175-208.
    4. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
    5. Paetzold, Jörg, 2019. "Do commuting subsidies increase commuting distances? Evidence from a Regression Kink Design," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 136-147.
    6. Anthony J. Venables, 2007. "Evaluating Urban Transport Improvements: Cost-Benefit Analysis in the Presence of Agglomeration and Income Taxation," Journal of Transport Economics and Policy, University of Bath, vol. 41(2), pages 173-188, May.
    7. repec:bla:scandj:v:79:y:1977:i:4:p:417-23 is not listed on IDEAS
    8. Matthias Wrede, 2009. "A Distortive Wage Tax and a Countervailing Commuting Subsidy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(2), pages 297-310, April.
    9. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
    10. David R. Agrawal & William H. Hoyt, 2018. "Commuting and Taxes: Theory, Empirics and Welfare Implications," Economic Journal, Royal Economic Society, vol. 128(616), pages 2969-3007, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    income tax; commuting; commuter cost; subsidies on commuting; place of residence;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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