Transport Consumption Inequalities and Redistributive Effects of Taxes: a Repeated Cross-sectional Evaluation for France, Denmark and Cyprus



Transport Consumption Inequalities and Redistributive Effects of Taxes: a Repeated Cross-sectional Evaluation for France, Denmark and Cyprus

Authors

A Berri, INRETS, FR; S V Lyk-Jensen, SFI, DK; I Mulalic, Technical University of Denmark and University of Copenhagen, DK; T Zachariadis, University of Cyprus, CY

Description

The paper evaluates transport consumption inequalities among households in France, Denmark and Cyprus, investigates their temporal dynamics and estimates the redistributive effects of taxes (in particular car-related taxes).

Abstract

Car taxes are not only a source of public revenues but also a policy tool to reduce traffic nuisances. Most of them were instituted in a time where the car was a luxury good (e.g. the French annual tax on vehicles owned in 1956, and the registration tax in Denmark in 1924!). The large social diffusion of the car over the past decades has doubtless lessened the progressivity of these taxes. The recent protests in several European countries against the rapid increase in fuel prices highlighted the sensitivity to the burden of fuel costs, not only of professionals but also of households, particularly the suburban ones who are more car-dependent.

This paper evaluates transport consumption inequalities among households in three EU countries (Cyprus, Denmark and France), investigates their temporal dynamics and estimates the redistributive effects of taxes on different commodity categories. It aims at providing insights into the possibility and desirability of using fiscal levers to limit car use and its environmental nuisances. A comparative analysis is carried out in light of the differences between these countries, most notably in terms of car and fuel taxation systems and car ownership levels.

Consumption is measured in terms of expenditures collected through budget surveys. By revealing the amounts spent on different goods and services, expenditure surveys tell us who bears the most the corresponding taxes (notably, according to income level) and thus the potential losers and gainers from possible changes in taxation. The analyses use household-level data from repeated cross-sections. For each country, a few distant survey periods (about 10 years apart) are selected among the available data sets: three for France (1978-79, 1989 and 2000-01), two for Cyprus (1991 and 2003), and two for Denmark (1997 and 2005).

We apply a decomposition of the Gini inequality index by expenditure component. The contribution of each component to total inequality is a function of its proper Gini coefficient, its budget share and its degree of association with total expenditure. This method allows a better understanding of the inequality mechanisms, in particular their temporal evolution. Moreover, it permits evaluating the redistributive effect of (a change in) a tax on a good or a service. The redistributive effect of a tax is measured by its impact on inequalities. Finally, it provides estimates of elasticities with respect to total expenditure (or income) without specifying a functional form for the Engel curves.

The results highlight the effect of car social diffusion. Indeed, the relative contribution of car use items to total expenditure inequality decreases over time, reflecting the more and more widespread use of the car. Moreover, fuel taxes become regressive (i.e. they affect the poor more than the rich) except in Denmark where they are still slightly progressive (i.e. they affect the rich more than the poor), while the progressive character of taxes on the remaining car use commodities weakens with time. Taxes on transport goods and services as a whole are progressive. This progressivity is, however, mainly attributable to the progressivity of taxes on car purchases, strongly linked to income and constituting the largest budget share as compared to other types of transport expenditure. The progressivity of taxes on car purchases is by far much stronger in Denmark. In this country, these taxes are so high that car purchase costs can be afforded only by high incomes.

As a consequence, the design of policy measures to reduce car use as a mean to attenuating its nuisances for the environment should also take into account the imperative of equity. Increasing car use costs, notably fuel prices, through uniform taxes would be unfair. In particular, the least wealthy car-dependent households living in low-densely populated zones would face a heavy burden they cannot avoid. Area-specific measures may be more appropriate. In the case of dense urban areas, urban tolls and restrictions of access are examples of such measures. In parallel, public transport supply is to be improved in terms of lines of service, speed, punctuality, comfort, etc. In addition, a global approach should include actions on the housing sector so as to increase the density of the urban fabric and attenuate the sprawl tendency.

Publisher

Association for European Transport