Empirical Economics

, Volume 45, Issue 3, pp 1189–1204

Distortionary company car taxation: deadweight losses through increased car ownership

Authors

    • FEWEBVU University
  • Eva Gutiérrez-i-Puigarnau
    • FEWEBVU University
Article

DOI: 10.1007/s00181-012-0659-0

Cite this article as:
van Ommeren, J.N. & Gutiérrez-i-Puigarnau, E. Empir Econ (2013) 45: 1189. doi:10.1007/s00181-012-0659-0

Abstract

We analyse the effects of distortionary company car taxation through increased household car consumption for the Netherlands. We use several identification strategies and demonstrate that for about 20 % of households company car possession increases car ownership. The annual welfare loss of distortionary company taxation through increased car ownership is generally rather small, maximally €120 per company car, and much less than the welfare loss through increased expenditure on the company car. However, for policies that exempt households from paying tax on their company car, the annual deadweight loss is likely higher. Our first-best tax policy recommendation is to increase company car tax rates. However, our current results suggest that a second-best policy, which keeps average company car taxation constant but which reduces the marginal tax on cheaper cars and increases the marginal tax on expensive cars, would be welfare improving as overconsumption of company cars will be reduced.

Keywords

Fringe benefitsTaxationCompany carCar ownership Deadweight loss

JEL Classification

D12D61J33R41R48

Copyright information

© Springer-Verlag Berlin Heidelberg 2012