Empirical Economics

, Volume 45, Issue 3, pp 1189–1204

Distortionary company car taxation: deadweight losses through increased car ownership

  • Jos N. van Ommeren
  • Eva Gutiérrez-i-Puigarnau
Article

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 benefits Taxation Company car Car ownership  Deadweight loss 

JEL Classification

D12 D61 J33 R41 R48 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Jos N. van Ommeren
    • 1
  • Eva Gutiérrez-i-Puigarnau
    • 1
  1. 1.FEWEBVU UniversityAmsterdamThe Netherlands

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