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Global: Environmental and related social costs of the tax treatment of company cars

02 October 2014   (0 Comments)
Posted by: Author: OECD
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Author: OECD

This paper builds upon a recent OECD paper on the personal tax treatment of company cars and commuting expenses in OECD member-countries and aims to arrive at a better understanding of the environmental and related social costs of the tax treatment described therein.The paper begins with an analysis of the larger transport market, which is the primary storehouse of evidence on the nature and extent of the environmental impacts of the various transport modes, the relative importance of the proximate and underlying determinants of these impacts, and the elasticities and functional relationships at work. Non-linearities in the relevant elasticities and functional relationships mean that the tax treatment of company cars may have a greater or lesser impact than is suggested by the size of the company car market. And distortions in relative prices between competing modes in the larger transport market mean that subsidies can have very different impacts depending on the mode in question.

The further analysis of the interaction of the current tax treatment of company cars and commuting expenses with the transport market yields several findings. The current under-taxation of company cars is likely to result in a disproportionately large increase in total distance driven, composed of both an increase in the number of cars in use and an increase in distance driven per car. In turn, this is likely to result in disproportionately large impacts on most relevant environmental and related social costs. And a favourable tax treatment of commuting expenses generally, and of employer-paid parking in particular, is likely to impact on the choice of transport mode in favour of the car relative to public transport and non-motorised modes. In turn, this is likely to impact on most relevant environmental and related social costs..

An Annex to this paper provides, for the OECD group of countries as a whole, some indicative estimates of the main relevant impacts of the under-taxation of company cars as well as an indicative estimate of its overall social cost. The largest quantified cost elements are additional congestion costs; additional local air pollution costs; and additional traffic accident costs. The overall social cost attributable to the current under-taxation of company cars is estimated at circa EUR 116 billion per year.

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This article first appeared on oecd-ilibrary.org.


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