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

Author

Listed:
  • De Borger Bruno

    (University of Antwerp)

  • Mayeres Inge

    (Federal Planning Bureau, Brussels, Belgium and K.U.Leuven-Center for Economic Studies)

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 welfareoptimal public transport fares and two-part tariffs on ownership and use of gasoline and diesel cars in Belgium. Results are as follows. First, we find that the current differences in tax treatment between diesel and gasoline car ownership and 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. Second, if for political or technical reasons variable car taxes cannot be optimally adjusted, large differences in fixed car taxes do result. The same holds if 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, 2004. "Taxation of car ownership, car use and public transport: insights derived from a discrete choice numerical optimisation model," Energy, Transport and Environment Working Papers Series ete0413, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0413
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    References listed on IDEAS

    as
    1. Bruno De Borger & Stef Proost (ed.), 2001. "Reforming Transport Pricing in the European Union," Books, Edward Elgar Publishing, number 1822.
    2. De Borger, Bruno & Wouters, Sandra, 1998. "Transport externalities and optimal pricing and supply decisions in urban transportation: a simulation analysis for Belgium," Regional Science and Urban Economics, Elsevier, vol. 28(2), pages 163-197, March.
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    9. Mayeres, Inge & Proost, Stef, 2001. "Should diesel cars in Europe be discouraged?," Regional Science and Urban Economics, Elsevier, vol. 31(4), pages 453-470, July.
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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. De Borger, Bruno & Mayeres, Inge, 2007. "Optimal taxation of car ownership, car use and public transport: Insights derived from a discrete choice numerical optimization model," European Economic Review, Elsevier, vol. 51(5), pages 1177-1204, July.
    3. 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.
    4. 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.
    5. Muthukrishnan, Subhashini, 2010. "Vehicle ownership and usage charges," Transport Policy, Elsevier, vol. 17(6), pages 398-408, November.

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    More about this item

    Keywords

    transport externalities; optimal taxation; two-part tariffs;
    All these keywords.

    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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