Abstract
Vehicle registrations have been shown to strongly react to tax reforms aimed at reducing CO2 emissions from passengers’ cars, but are the effects equally strong for positive and negative tax changes? The literature on asymmetric reactions to price and tax changes has documented similar results for everyday goods, but has not yet considered durables. We leverage multiple vehicle registration tax (VRT) reforms in Norway to show that, within car model, new car registrations react to tax cuts and fee-bates significantly more than to tax increases. The estimated elasticity is -1.99 for VRT decreases and 0.77 for increases.
Highlights
In the past decade, many European countries have reformed their taxes on vehicle purchases in order to reduce CO2 emissions rates
We do so by estimating Eqs. 1, 2, and 3 on data aggregated at the vehicle-quarter level. In this specification, tax increases and decreases are captured by ΔTij and their effect is given by. While we could theoretically repeat the same analysis for the reform of 2009, graphical inspection suggests a violation of the parallel trends assumption in 2008, possibly due to longer-run effects of the 2007 reform
Under standard assumptions of symmetry and given our estimates, we should expect registrations to increase by 1.37% if the Vehicle Registration Tax (VRT) decreases from T to T − 1%, and to decrease by the same 1.37% amount if the VRT increases from T − 1% to T
Summary
Many European countries have reformed their taxes on vehicle purchases in order to reduce CO2 emissions rates. The reforms consisted of positive and/or negative tax incentives, aimed at discouraging the purchase of high CO2 emitting vehicles in favor of greener ones. Ex-post evaluations of these reforms generally show a quite successful shift toward lower CO2 emitting vehicles and an increase in diesel shares, but little is known beyond average effects. We ask whether vehicle sales are affected symmetrically, meaning strongly, by positive and negative vehicle tax variations. While these asymmetries have been empirically documented for everyday goods, no clear evidence is available for durables.
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