Large Changes in Prices: an Empirical Controlled Budget Approach



Large Changes in Prices: an Empirical Controlled Budget Approach

Authors

ROSENBERG F A, Transport Research Centre, MEURS H and MEIJER E, MuConsult, The Netherlands

Description

The rapid growth of (car)mobility in the Netherlands causes serious problems for society. Pricing policy is regarded as a major policy instnmaeut to limit the growth and its effects. During the last decade a number of adjustments were made in fuel taxatio

Abstract

The rapid growth of (car)mobility in the Netherlands causes serious problems for society. Pricing policy is regarded as a major policy instnmaeut to limit the growth and its effects. During the last decade a number of adjustments were made in fuel taxation in the Netherlands causing fuel prices to rise. Empirical studies show that these relatively small price changes, had little impact on car use and that the price elasticities were about -0.1.

Another goal of Dutch transport policy is to decrease public transport subsidies which might cause prices in this sector to rise. From empirical studies we know that the sensitivity to public transport prices are high (around -1), although cross-elasticities with car use is very small. Because of the relatively high sensitivity and the idea that public transport might serve as an alternative to car use, price changes in this sector have been relatively small, in the past.

For policy reasons it would be interesting to know if large changes in variable and fixed car cost and public transport prices, will have proportionally different effects than small price changes. One would expect large price changes to be felt strongly by households and to force them to adjust their travel behaviour. The adjustments might not only influence mobility, but also other transport choices like car ownership or the location of work or residence. As such the impact of large price changes might be larger than the impact of small changes.

Transport research literature provides little information on the potential effect of large price changes. According to a study by BGC [1] large changes in public transport fares have a more than proportional effect compared to small changes. But no information was found on the effects of large price changes in fuels. Long term effects are according to Goodwin [2] larger than short term effects, because of the increase in opportunity to adjust behaviour. Still, van Wee[3] shows that changes in jobs or residence are relatively small in the Netherlands. In order to enhance the knowledge on this issue the Dutch Transport Research Centre (AVV) commissioned MuConsult to carry out this study [4].

Publisher

Association for European Transport