1. THE ROLE OF FUEL EXCISE TAX IN CONTROLLING CAR DEPENDENCE IN THE EXAMPLE OF ESTONIA Helen Poltimäe University of Tartu ESEE Conference, 14-17 June 2011

2. Background Car ownership and use increases with economic growth The energy intensity of Estonian economy is one of the highest in the EU Ecological tax reform initiated by Estonian Government since 2005 Transportation issues tackled by fuel excise tax Passenger transport by car has increased by 2 times in 1995-2008, by bus increased by 20%, by tram and rail decreased by 30%

3. Environmental tax revenues in 2007

4. Average CO 2 emissions of new passenger cars

5. The objective of the paper... is to find out, how sensitive is gasoline demand in Estonian household sector to income and price changes and whether it is possible to control increasing car dependence by fuel excise tax ▫Behavioural effects (cost-covering, incentive and revenue-raising taxes) ▫Distributional effects (income elasticity) The issue has been studied in developed countries, but not in catching-up countries ▫Higher economic growth ▫EU accession process

6. Some results of relevant studies Authors and year of the studyCountryMethodologyData used Income elasticity Price elasticity Goodwin (2004)Meta-analysis Different studies 1.08-0.63 Graham ja Glaister (2004)Meta-analysis Different studies 0.93-0.77 Brons et al (2008)Meta-analysis Different studies -0.84 Nicol (2003) USAAIDSMicro-data0.56-0.03 CanadaAIDSMicro-data0.44-0.58 Kayser (2000)USA2 SLSMicro-data0.48-0.23 Brännlund, Nordström (2004)SwedenAIDS Micro and macro-data -1.18 Labandeira et al (2005)SpainAIDSMicro-data1.79-0.11 Barros, Pietro-Rodriguez (2008)SpainAIDSMicro-data1.25-0.82 Asensio et al (2002)SpainProbitMicro-data0.90 Sardianou (2008)Greece2 SLSMicro-data0.52 Aasness, Larsen (2003)Norway2 SLSMicro-data0.70 Wadud et al (2009)USAOLS, SURMicro-data0.38-0.20 [1] [1] If multiple elasticities are brought out in studies, the ones of middle income quintile are used

7. Data and method Estonian Household Budget Survey 2000-2007 Gasoline quantity consumed is calculated with the help of prices OLS, WLS and panel data analysis income gasoline price size of household urban/rural

8. Problems with data Gasoline expenditures = 0 Gasoline expenditures > 0 No car in a household48%5% Household owns or uses a car16%31%

9. Estimation results OLS (without exceptions) Weighted LS Fixed effect model Income0.003*** 0.001*** Gasoline price-3.647***-3.975***-3.271*** Household size1.961***1.409***3.377** Urban/rural-6.096***-4.026***... Constant62.162***45.929***70.644*** Income elasticity0.43***0.42***0.16*** Price elasticity-0.59***-0.62***-0.53***

10. Regression results by income quintiles 1st quintile2nd quintile3rd quintile4th quintile5th quintile Income0.0010.005***0.002*0.004***0.000* Household size4.848***-0.4100.058***-1.422*2.264** Gasoline price0.193-2.052***-1.539*-2.298**-2.077 Urban/rural-1.009-3.852**-10.143***-10.940***-15.346*** Constant20.440***41.714***61.846***65.088***111.370*** Income elasticity0.080.58***0.25*0.55***0.02* Price elasticity0.05-0.43***-0.26*-0.31**-0.22

11. Discussion of results Various models provide similar results When looking at specific households, a strong relationship between gasoline quantity and household size Income elasticity is lower than expected (lower than in other relevant studies) and lower than price elasticity, although should be vice versa The reason for low income elasticity and high price elasticity: ▫Private consumption? ▫Tendency to use compensation instead of salary in catching-up countries? ▫Availability of loans

12. Price indices and interest rates of loans

13. Conclusions Fuel excise tax is revenue-raising tax and not helpful in controlling increasing car dependence The case of Estonia can be generalized to quickly growing new economies The obligation of NMS to raise fuel excise to EU minimum level is necessary for reducing distortions of competition, but not in addressing energy intensity issues Other complementary measures are necessary

14. This research was supported by European Social Fund’s Doctoral Studies and International Programme DoRa Thank you!