1. Jordy van Meerkerk, Gusta Renes & Geert Ridder (University of Southern California) 1 Greening the Dutch car fleet The role of the differentiated sales tax

2. 02-10-2013 | Jordy van Meerkerk 2 Content 1.Introduction car taxation 2.Data 3.Model specification 4.Estimation & Simulation outcomes 5.Conclusion

3. 1 Introduction  How is the car taxation implemented in the Netherlands? –Vehicle Sales Tax (VST) -> Car purchase –Vehicle circulation tax -> Car ownership –Fuel tax -> Car use

4. 1 Introduction  Major changes have occurred! –The EU adopted mandatory CO2 emission standards for new cars –Member States are encouraged to adapt their car taxation schemes  In the Netherlands: ●Surcharge fuel inefficient cars in 2008 and 2009 ●A discount for the circulation tax for highly fuel efficient cars ●Progressive tax system (CO2) for the VST since 2010

5. Vehicle sales tax for 2005 and 2010 Vehicle Characteristics2005201020052010 Fuel type CO2 emission (gr/km) Net list price (Euro) VST VST rate Petrol90100002980030%0% Petrol150150005240451135%28% Petrol200200007500953038%44% Petrol2502000075001583038%73% Petrol3002500097602847039%105% Diesel90100004848048%0% Diesel150150007108738547%46% Diesel2002000093681470447%68% Diesel2502000093682392047%111% Diesel30025000116283980047%147%

6. Research questions 1.What are the effects of this tax change on the composition of the Dutch car sales? 2.Is the sales tax an effective way to stimulate the purchase of new fuel efficient cars? 3.What is the (relative) importance of the purchase price and the operating costs in the purchase decision of a new car?

7.  Changing costs  composition of car sales? –Vehicle type choice model  Previous research mainly based on Stated Preference data ›Big price variations didn’t exist in the market ›Stated choices are hypothetical and may differ from reality  Due to the tax changes more price variation observed –Opportunity to use Revealed Preference data of car purchase decisions by Dutch households

8. 2 Data  Survey research –Recently purchased privately owned principal cars (N=1800)  Car characteristics ›Age, fuel type and weight ›Horse power, cylinder capacity and fuel consumption ›Purchase price, annual circulation tax and fuel price  Household characteristics ›HH income, HH size and annual car mileage  Choice based sample ●New or second-hand car ●Fuel type

9. 3 Modeling vehicle type choice  Vehicle type choice model –Given car purchase, which vehicle type will be chosen?  Choice set: many car alternatives in reality! –We used 32 car types ›3 fuel types ›4 age classes ›2/4 weight classes (depending on fuel type)  Full choice set based on sales data

10. Model specification: utility function

11. MNL model  Based on an extreme value distribution for the random component the probability in the MNL is given by:

12. 4 Estimation outcomes  The parameters are estimated by means of the maximum likelihood method  Due to the choice based nature of the sample: ›Weights: population share / sample share

13. VariableParameterSEP-value Ln Price x Income < 32500 euro -3.530.370.00 Ln Price x Income 32500-65000 euro -3.270.360.00 Ln Price x Income > 65000 euro -3.020.360.00 Ln Circulation Tax -0.130.350.71 Variable costs (1000) x Income < 32500 euro -0.900.250.00 Variable costs (1000) x Income 32500-65000 euro -0.600.190.00 Variable costs (1000) x Income > 65000 euro -0.490.210.02 Variable costs (1000) x Mileage > 25000 km -0.420.140.00 Ln Power x Income 32500-65000 euro 0.790.300.01 Ln Power x Income > 65000 euro 1.260.390.00 Ln Size 0.370.110.00 Ln CarWeight x HHsize 1 3.661.150.00 Ln CarWeight x HHsize 2 5.821.120.00 Ln CarWeight x HHsize > 2 6.771.150.00 Car New 5.030.720.00 Car Age 1-2 year 3.140.570.00 Car Age 3-5 year 2.360.370.00 Diesel -1.140.280.00 LPG -3.240.230.00

14. Model Simulations  What is the effect of the progessive tax system?  We focused only on the purchase of new cars 14

15. Simulations: Effect of the progressive VST Effects of the new tax scheme for the VST on the shares of new cars Fuel weight Pr 2011 (without) Pr 2011 (with) dif 2011 Petrol <950 kg20.4%22.7%11.0% Petrol 950-1150 kg21.4%21.6%1.0% Petrol 1150-1350 kg26.1%24.5%-6.4% Petrol >1350 kg14.9%13.6%-8.9% Diesel <1350 kg5.9%7.0%19.7% Diesel >1350 kg7.4%7.0%-5.3% LPG <1350 kg2.3%2.2%-3.5% LPG >1350 kg1.6%1.4% -8.6%

16. An alternative way could be to increase the fuel price

17. Simulations: overall fuel price increase Fuel weight Pr 2011 (without) Pr 2011 (with) dif 2011dif 2011 (1) Petrol <950 kg20.4%22.7%11.0%1.5% Petrol 950-1150 kg21.4%21.6%1.0%-0.5% Petrol 1150-1350 kg26.1%24.5%-6.4%-1.9% Petrol >1350 kg14.9%13.6% -8.9%-3.9% Diesel <1350 kg5.9%7.0%19.7%7.0% Diesel >1350 kg7.4%7.0% -5.3%2.1% LPG <1350 kg2.3%2.2%-3.5%9.2% LPG >1350 kg1.6%1.4% -8.6%5.6% (1) overall fuel price increase of 10%

18. Simulations: Differentiated fuel price increase Fuel weight Pr 2011 (without) Pr 2011 (with) dif 2011dif 2011 (2) Petrol <950 kg20.4%22.7%11.0%10.1% Petrol 950-1150 kg21.4%21.6%1.0%2.1% Petrol 1150-1350 kg26.1%24.5%-6.4%-3.4% Petrol >1350 kg14.9%13.6% -8.9%-10.6% Diesel <1350 kg5.9%7.0%19.7%14.8% Diesel >1350 kg7.4%7.0% -5.3%-7.0% LPG <1350 kg2.3%2.2%-3.5%-4.7% LPG >1350 kg1.6%1.4% -8.6%-20.4% (2) differentiated fuel price increase of 35%, 50% and 75%

19. 5 Conclusions  Circulation tax has a minor impact on car type choice  Stimulating the purchase of small fuel efficient cars is best achieved by lowering their sales tax. –More effective in comparison with a fuel tax increase –The differentiated fuel price increases have to be substantial to reach similar effects  However:  Effects on fleet size, car usage and total CO2-emissions are not addressed in this analysis

20. 6 Discussion  Based on the outcomes, the progressive tax system for the VST is an effective way to stimulate the purchase of efficient cars. The circulation tax seems to have little effect. Are these model outcomes plausible?  Could this be an adequate policy for other European countries?  Is there another way to define the choice set in the Logit model which better reflects the issues we are dealing with? –The car types are now based on fuel type, weight and age