The impact of tax reform on new car purchases in Ireland

Hennessy, Hugh and Tol, Richard S J (2011) The impact of tax reform on new car purchases in Ireland. Energy Policy, 39 (11). pp. 7059-7067. ISSN 0301-4215

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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.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences > GE300 Environmental management
H Social Sciences > HB Economic theory. Demography
H Social Sciences > HE Transportation and communications > HE5601 Automotive transportation
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Depositing User: Richard Tol
Date Deposited: 17 Apr 2012 14:31
Last Modified: 30 Nov 2012 17:11
URI: http://sro.sussex.ac.uk/id/eprint/38231
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