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Tax Deductibility of Commuting Expenses and Leisures: On the Tax Treatment of Time-Saving Expenditure

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  • Matthias Wrede

Abstract

Assuming that higher traveling expenses reduce traveling time, this paper considers tax deductibility of commuting expenses when a distorting wage tax is levied. While the decision on commuting expenses would not be distorted if traveling costs were completely deductible, taxation would still not be neutral with respect to the leisure-consumption choice. Moreover, the paper shows that second-best optimum taxation requires less than complete deductibility of commuting expenses. Since commuting expenses are simply a special case of time-saving expenditure, this paper develops optimum taxation rules concerning the taxation of time-saving expenditure.

Suggested Citation

  • Matthias Wrede, 2001. "Tax Deductibility of Commuting Expenses and Leisures: On the Tax Treatment of Time-Saving Expenditure," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(2), pages 216-224, March.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200103)57:2_216:tdocea_2.0.tx_2-9
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    Citations

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    Cited by:

    1. Wolfram F. Richter & Peter Bareis & Matthias Wrede & Martin Gasche, 2004. "Ist die Abschaffung der Entfernungspauschale ökonomisch sinnvoll?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 57(05), pages 5-19, March.
    2. DE BORGER, Bruno, "undated". "Commuting, congestion tolls and noncompetitive labour markets: Optimal congestion pricing in a wage bargaining model," Working Papers 2006014, University of Antwerp, Faculty of Business and Economics.
    3. Matthias Wrede, 2003. "Tax Deductibility of Commuting Expenses and Residential Land Use with more than one Center," CESifo Working Paper Series 972, CESifo.
    4. De Borger, Bruno, 2009. "Commuting, congestion tolls and the structure of the labour market: Optimal congestion pricing in a wage bargaining model," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 434-448, July.
    5. Wrede, Matthias, 2001. "Should Commuting Expenses Be Tax Deductible? A Welfare Analysis," Journal of Urban Economics, Elsevier, vol. 49(1), pages 80-99, January.
    6. Borck, Rainald & Wrede, Matthias, 2005. "Political economy of commuting subsidies," Journal of Urban Economics, Elsevier, vol. 57(3), pages 478-499, May.
    7. Peter Schwarz, 2017. "Federalism and horizontal equity across Switzerland and Germany: a new rationale for a decentralized fiscal structure," Constitutional Political Economy, Springer, vol. 28(2), pages 97-116, June.
    8. Hirte, Georg & Tscharaktschiew, Stefan, 2013. "Income tax deduction of commuting expenses in an urban CGE study: The case of German cities," Transport Policy, Elsevier, vol. 28(C), pages 11-27.
    9. Tscharaktschiew, Stefan & Hirte, Georg, 2012. "Should subsidies to urban passenger transport be increased? A spatial CGE analysis for a German metropolitan area," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(2), pages 285-309.
    10. Wolfram Richter, 2006. "Efficiency effects of tax deductions for work-related expenses," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(6), pages 685-699, November.
    11. Barbaro, Salvatore & Suedekum, Jens, 2006. "Reforming a complicated income tax system: The political economy perspective," European Journal of Political Economy, Elsevier, vol. 22(1), pages 41-59, March.
    12. Homburg, Stefan, 2008. "Die Entfernungspauschale als steuertheoretische Herausforderung," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 45-53.
    13. Borck, Rainald & Wrede, Matthias, 2009. "Subsidies for intracity and intercity commuting," Journal of Urban Economics, Elsevier, vol. 66(1), pages 25-32, July.
    14. Hirte, Georg & Tscharaktschiew, Stefan, 2011. "Income tax deduction of commuting expenses and tax funding in an urban CGE study: the case of German cities," Dresden Discussion Paper Series in Economics 02/11, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    15. 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.

    More about this item

    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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