Charging Drivers by the Pound: The Effects of the UK Vehicle Tax System

CER-ETH – Center of Economic Research at ETH Zurich, Working Paper 17/271, May 2017

52 Pages Posted: 13 May 2017 Last revised: 7 Jul 2017

See all articles by Davide Cerruti

Davide Cerruti

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Anna Alberini

University of Maryland - Department of Agricultural & Resource Economics

Joshua Linn

Resources for the Future

Date Written: July 2017

Abstract

Policymakers have been considering vehicle and fuel taxes to reduce transportation greenhouse gas emissions, but there is little evidence on the relative efficacy of these approaches. We examine an annual vehicle registration tax, the Vehicle Excise Duty (VED), which is based on carbon emissions rates. The UK first adopted the system in 2001 and made substantial changes to it in the following years. Using a highly disaggregated dataset of UK monthly registrations and characteristics of new cars, we estimate the effect of the VED on new vehicle registrations and carbon emissions. The VED increased the adoption of low-emissions vehicles and discouraged the purchase of very polluting vehicles, but it had a small effect on aggregate emissions. Using the empirical estimates, we compare the VED with hypothetical taxes that are proportional either to carbon emissions rates or to carbon emissions.

The VED reduces total emissions twice as much as the emissions rate tax but by half as much as the emissions tax. Much of the advantage of the emissions tax arises from adjustments in miles driven, rather than the composition of the new car sales.

Keywords: CO2 emissions, vehicle registration fees, carbon taxes, vehicle excise duty, UK

JEL Classification: H23, Q48, Q54, R48

Suggested Citation

Cerruti, Davide and Alberini, Anna and Linn, Joshua, Charging Drivers by the Pound: The Effects of the UK Vehicle Tax System (July 2017). CER-ETH – Center of Economic Research at ETH Zurich, Working Paper 17/271, May 2017 , Available at SSRN: https://ssrn.com/abstract=2967312 or http://dx.doi.org/10.2139/ssrn.2967312

Davide Cerruti (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Anna Alberini

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States
301-405-1267 (Phone)
301-314-9091 (Fax)

Joshua Linn

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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