Not fully charged: Welfare effects of tax incentives for employer-provided electric cars

Abstract

More than 15 million cars are provided as fringe benefits by employers in Europe. The company car market is the driving force of changes in European car fleets and one of the main channels for the penetration of low emission vehicles. Policies in support of low emission vehicles through this channel have been popular. This paper introduces an approach to estimate the welfare effects of policies linking company car tax base rates with vehicles׳ environmental impact. The approach is applied to evaluate the effects of tax advantages for electric company cars in the Netherlands. We find that the welfare losses caused by these policies are substantial, and even outweigh the foregone tax revenue. This result also holds if we assume that there are substantial future benefits from the adoption of electric company cars, e.g. in terms of positive network externalities, technological innovation and concomitant environmental benefits.