Car User Taxes, Quality Characteristics, and Fuel Efficiency Household Behaviour and Market Adjustment. (1st September 2014)

• Record Type: Journal Article
• Authors: De Borger, Bruno; Rouwendal, Jan
• Is Part Of: Journal of transport economics and policy. Volume 48:Number 3(2014:Sep.)
• Page Start: 345
• Page End: 366
• Publication Date: 2014-09-01
• Subjects: Transportation -- Periodicals; 388.05
• Languages: English
• ISSNs: 1754-5951

Abstract

We study the impact of car user taxes on vehicle quality and demand for kilometres. First, holding car prices fixed, we find that a higher fuel tax leads households to choose cars of better fuel efficiency, provided that the demand for car use is inelastic. Surprisingly, a higher kilometre tax reduces the demand for fuel efficiency. Next, we study how car prices react to the tax changes. Fuel taxes make owning very fuel-efficient cars more expensive, while reducing prices of cars of low fuel efficiency. Both fuel taxes and kilometre charges imply lower prices for large and powerful cars.