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The Impact of Tax Reform on New Car Purchases in Ireland. ESRI WP349. July 2010

Hennessy, Hugh and Tol, Richard S.J. (2010) The Impact of Tax Reform on New Car Purchases in Ireland. ESRI WP349. July 2010. [Working Paper]

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    Abstract

    We examine the impact of recent tax reforms in Ireland on private car transport and its greenhouse gas emissions. A carbon tax was introduced on fuels, and purchase (vehicle registration) and ownership (motor) taxes were switched from engine size to potential emissions. We use a demographic model of the car stock (by age, size, and fuel) and a car purchase model that reflects the heterogeneous distribution of mileage and usage costs across various engine sizes. The model shows a dramatic shift from petrol to diesel cars, particularly for large engines. The same pattern is observed in the latest data on car sales. This has a substantial impact on tax revenue as car owners shift to the lower tax rates. The tax burden has shifted from car ownership to car use, and that the overall tax burden on private car transport falls. As diesel engines are more fuel efficient than petrol engines, carbon dioxide emissions fall modestly or, if we consider the rebound effect of travel costs on mileage, minimally. From the perspective of the revenue, the costs per tonne of carbon dioxide avoided are (very) high.

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    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > tax policy
    Countries > Ireland
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Economic and Social Research Institute (ESRI), Dublin > ESRI Working Papers
    Depositing User: Alyssa McDonald
    Official EU Document: No
    Language: English
    Date Deposited: 02 Dec 2017 17:44
    Number of Pages: 44
    Last Modified: 02 Dec 2017 17:52
    URI: http://aei.pitt.edu/id/eprint/87895

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