Transport consumption inequalities and redistributive effects of taxes

Working Paper 2010-159

Abstract

We evaluate household transport consumption inequalities in France, Denmark and Cyprus, investigate their temporal dynamics and estimate the redistributive effects of taxes on different commodity categories. A comparative analysis is carried out in light of the differences between these countries, most notably in terms of car taxation systems and car ownership levels. A decomposition by expenditure component of the Gini index is applied, using household-level data from repeated cross-sections of expenditure surveys spanning long time periods. The results highlight the effect of car social diffusion. The relative contribution of vehicle use items to total expenditure inequality decreases over time, thus 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), 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 (i.e. they affect the rich more than the poor). However, this is principally due to the progressivity of taxes on automobile purchases. 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. These findings underline the fact that equity issues should not be overlooked when designing policies to attenuate the environmental impact of cars. Increasing car use costs, notably fuel prices, through an increase of uniform taxes would be particularly inequitable.

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