Title
The tax treatment of company cars, commuting and optimal congestion taxes The tax treatment of company cars, commuting and optimal congestion taxes
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
Oxford ,
Subject
Economics
Mathematics
Engineering sciences. Technology
Source (journal)
Transportation research: part B: methodological. - Oxford
Volume/pages
45(2011) :10 , p. 1527-1544
ISSN
0191-2615
ISI
000297900000002
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
In Europe, the preferential tax treatment of company cars implies that many employees receive a company car as part of their compensation package. In this paper, we consider a model in which wages and the decision whether or not to provide a company car are the result of direct negotiation between employer and employee. Using this framework, we theoretically and numerically study first- and second-best optimal tax policies on labour and transport markets, focusing on the role of the tax treatment of company cars. We obtain the following results. First, higher labour taxes and a more favourable tax treatment of company cars raise the fraction employees that receives a company car; congestion and congestion tolls reduce it. Second, in countries that provide large implicit subsidies to company cars, eliminating the preferential tax treatment of company cars may be an imperfect but quite effective substitute for currently unavailable congestion tolls. The numerical illustration, calibrated using Belgian data, suggests that it yields about half the welfare gain attainable through optimal congestion taxes. Third, the favourable tax treatment of company cars justifies large public transport subsidies; the numerical results are consistent with zero public transport fares. Finally, we find that earlier models that ignored the preferential tax treatment of company cars may have substantially underestimated optimal congestion tolls in Europe. The numerical illustration suggests that about one third of the optimal congestion toll we obtain can be attributed to the current tax treatment of company cars. (C) 2011 Elsevier Ltd. All rights reserved.
E-info
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