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Car User Taxes, Quality Characteristics, and Fuel Efficiency Household Behaviour and Market Adjustment

Bruno De Borger and Jan Rouwendal ()

Journal of Transport Economics and Policy, 2014, vol. 48, issue 3, 345-366

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. © 2013 LSE and the University of Bath

Date: 2014
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