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THE ROLE OF FUEL EXCISE TAX IN CONTROLLING CAR DEPENDENCE IN THE EXAMPLE OF ESTONIA

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. Background. Car ownership and use increases with economic growth The energy intensity of Estonian economy is one of the highest in the EU

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THE ROLE OF FUEL EXCISE TAX IN CONTROLLING CAR DEPENDENCE IN THE EXAMPLE OF ESTONIA

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  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 CO2 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. [1] If multiple elasticities are brought out in studies, the ones of middle income quintile are used Some results of relevant studies

  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 urban/rural size of household

  8. Problems with data

  9. Estimation results

  10. Regression results by income quintiles

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

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