The tax treatment of company cars, commuting and optimal congestion taxes

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.

• Record URL:
  http://www.sciencedirect.com/science/article/pii/S0191261511000890
• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/issn/01912615
• Supplemental Notes:
  • Abstract reprinted with permission from Elsevier.
• Authors:
  • De Borger, Bruno
  • Wuyts, Bart
• Publication Date: 2011-12

Language

• English

Media Info

• Media Type: Print
• Features: Appendices; Figures; References; Tables;
• Pagination: pp 1527-1544
• Serial:
  • Transportation Research Part B: Methodological
  • Volume: 45
  • Issue Number: 10
  • Publisher: Elsevier
  • ISSN: 0191-2615
  • Serial URL: http://www.sciencedirect.com/science/journal/01912615

Subject/Index Terms

• TRT Terms: Automobile ownership; Automobiles; Employee benefits; Mathematical models; Optimization; Taxation; Tolls; Traffic congestion
• Geographic Terms: Belgium; Europe
• Subject Areas: Finance; Highways; Planning and Forecasting; Vehicles and Equipment; I73: Traffic Control;

Filing Info

• Accession Number: 01359507
• Record Type: Publication
• Files: TRIS, ATRI
• Created Date: Dec 22 2011 2:08PM