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Tax Policy and CO2 Emissions – An Econometric Analysis of the German Automobile Market

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  • Vance, Colin
  • Mehlin, Markus

Abstract

In addition to efficiency standards and consumer information, car-related taxes constitute one of three pillars of the European Commission¿s strategy to reduce CO2 emissions from passenger cars. A longstanding question concerns the effectiveness of such taxes in determining the car-purchasing behavior of households. Several recent studies suggest that purchases are primarily determined by retail costs rather than by taxes, the latter of which are typically incurred over the lifetime of the car. Using panel data on new-car registrations in Germany, Europe's largest car market, the present paper addresses this issue with an econometric analysis of the impact of fuel costs and circulation taxes on car market shares. By employing a nested logit model that explicitly recognizes the segmented structure of the car market, the analysis takes account of correlation in unobserved shocks among cars belonging to the same market segment. Moreover, given the panel structure of the data, a fixed effects estimator is employed to control for the influence of unobservable, time- invariant automobile attributes that could otherwise induce biases in the estimated coefficients. Contrasting with much of the evidence garnered to date, the results suggest that circulation taxes and fuel costs significantly determine car market shares, and hence may serve as effective instruments in influencing the composition of the car fleet and associated CO2 emissions.

Suggested Citation

  • Vance, Colin & Mehlin, Markus, 2009. "Tax Policy and CO2 Emissions – An Econometric Analysis of the German Automobile Market," Ruhr Economic Papers 89, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
  • Handle: RePEc:zbw:rwirep:89
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    References listed on IDEAS

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    1. Frondel, Manuel & Schmidt, Christoph M. & Vance, Colin, 2008. "A Regression on Climate Policy - The European Commission's Proposal to Reduce CO2 Emissions from Transport," Ruhr Economic Papers 44, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    3. repec:zbw:rwirep:0044 is not listed on IDEAS
    4. Manuel Frondel & Colin Vance, 2009. "Do High Oil Prices Matter? Evidence on the Mobility Behavior of German Households," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(1), pages 81-94, May.
    5. King, Gary & Honaker, James & Joseph, Anne & Scheve, Kenneth, 2001. "Analyzing Incomplete Political Science Data: An Alternative Algorithm for Multiple Imputation," American Political Science Review, Cambridge University Press, vol. 95(1), pages 49-69, March.
    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Azarafshar, Roshanak & Vermeulen, Wessel N., 2020. "Electric vehicle incentive policies in Canadian provinces," Energy Economics, Elsevier, vol. 91(C).
    2. Klier, Thomas & Linn, Joshua, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," RFF Working Paper Series dp-11-37, Resources for the Future.
    3. European Commission, 2012. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2012 Report," Taxation Papers 34, Directorate General Taxation and Customs Union, European Commission.
    4. Weber, Sylvain, 2019. "Consumers' preferences on the Swiss car market: A revealed preference approach," Transport Policy, Elsevier, vol. 75(C), pages 109-118.
    5. Joschka Flintz & Manuel Frondel & Marco Horvath, 2022. "Emissionswirkungen der 2021 reformierten Kfz-Steuer: Eine empirische Analyse [Emissions effects of the german vehicle tax: an empirical analysis]," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer;Deutsche Statistische Gesellschaft - German Statistical Society, vol. 16(3), pages 255-276, December.
    6. Massiani, Jérôme, 2015. "Cost-Benefit Analysis of policies for the development of electric vehicles in Germany: Methods and results," Transport Policy, Elsevier, vol. 38(C), pages 19-26.
    7. Perrels, Adriaan & Tuovinen, Tarja, 2012. "The Effectiveness of Differentiation of the Finnish Car Purchase Tax according to Carbon Dioxide Emission Performance," Research Reports 168, VATT Institute for Economic Research.
    8. Chugh, Randy & Cropper, Maureen, 2017. "The welfare effects of fuel conservation policies in a dual-fuel car market: Evidence from India," Journal of Environmental Economics and Management, Elsevier, vol. 86(C), pages 244-261.
    9. Haaf, C. Grace & Morrow, W. Ross & Azevedo, Inês M.L. & Feit, Elea McDonnell & Michalek, Jeremy J., 2016. "Forecasting light-duty vehicle demand using alternative-specific constants for endogeneity correction versus calibration," Transportation Research Part B: Methodological, Elsevier, vol. 84(C), pages 182-210.
    10. Klier, Thomas & Linn, Joshua, 2013. "Fuel prices and new vehicle fuel economy—Comparing the United States and Western Europe," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 280-300.
    11. Lidia Mannarino, 2009. "Il Mercato Delle Automobili In Italia: Effetti Del Regolamento Cee 1400/2002," Working Papers 200913, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.

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    More about this item

    Keywords

    Fuel tax; circulation tax; car market; Germany; panel data; nested logit model;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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