Study: Changes in motor vehicle tax do not significantly impact on the number of first-time registration of new cars

The changes in motor vehicle taxation implemented in Finland in 2003, 2008 and 2012 do not appear to have significantly impacted on the number of new cars - nor are they reflected in the number of old cars removed from use.

Autojonoja Tukholmassa. Kuva: Susanne Nilsson (CC BY-SA 2.0) Photo: Susanne Nilsson (CC BY-SA 2.0)

Researchers at VATT Institute for Economic Research, Labour Institute for Economic Research (PT) and the University of California (Berkely) have estimated the impacts of changes in the motor vehicle tax and fuel tax on the stocks of motor vehicles in Finland, Sweden and Norway. The researchers also examined the impacts of changes in motor vehicle tax on the properties of new cars and on the level of CO2 emissions. The second part of the study focused on the regional price impacts of the fuel tax reform implemented in 2012. The results now published are the first of the comprehensive research programme, and they should be seen as being preliminary and of a descriptive kind.

The comparisons shows that Finns are driving older and less valuable cars than Swedes and Norwegians, but that the 2003 motor-vehicle tax reform of 2003 had the effect of slightly narrowing this gap. The changes in taxation appear to be reflected somewhat also in the CO2 emission levels of new cars, but these changes in the emissions are not great. However, the proportion of diesel-engined motor vehicles increased steeply in all three countries following the introduction of CO2-based taxes.

According to the study, the changes in motor vehicle taxation were reflected briefly before and after changes in the number of motor vehicles sold. Following the taxation reforms of 2003 and 2012 in Finland, changes were also noted, in the longer run, in the number of first-time registrations of motor vehicles, but it is unclear whether these changes were caused by the changes in motor-vehicle taxation.

A vast amount of data was collected for the study covering the years 2000 2014 and it is being used for the first time for carrying out a detailed comparison between the characteristics of the stocks of motor vehicles in Finland's, Sweden and Norway.

Consumers are paying more in rural areas than in towns following the increase in diesel tax

Regarding fuel taxes, the study looked into the matter of whether the transfer of the increase in Finland's fuel taxes in 2012 into consumer prices differed according to regional differences in income and wealth or population density.

On the basis of the results, a larger proportion bigger of the increase in the diesel tax was transferred to prices in relatively low-income and low housing-wealth regions. In the lowest regional income and wealth groups, the proportion of the increase in taxation transferred into prices was 15-20% points greater than in the uppermost income and wealth groups. The same applied to more densely populated regions - a smaller proportion of the increase in taxation was transferred into prices. In all of the regions, only a part of the increase in taxation was transferred into the prices.

In the regions characterised by the highest incomes, greatest wealth, and highest population densities, and in the most urbanised areas, the “through-put” of the increase in taxation was about 60% while in the regions lowest incomes, lowest wealth, and lowest population density and in rural areas it was slightly below 80%.

A new calculation tool for assessing motor vehicle and fuel tax changes

The project also includes a separate module for motor vehicle taxes and fuel taxes to be used in connection with the SISU microsimulation model. The SISU model is a calculation tool intended to be used in the planning, monitoring and assessing personal taxation and social security legislation. It is being used for purposes such as estimation of public sector tax revenues, examination of the economic status of individual citizens and households, and for assessing the income differences and effects of incentives.

When developing the separate module for motor vehicle taxes and fuel taxes, the primary task has been to ensure the availability and usability of the necessary and sufficiently comprehensive materials for the simulation stage. The necessary variables and materials have been picked or have been concluded from the source materials, and then edited to meet the simulation requirements. In addition to the compiling of materials, the final report will describe the formulation of the simulation models and present some results that obtained when using the model.

The studies have been carried out as a part of the Government’s 2017 Analysis, Assessment and Research Plan.

Research reports:

Studying fuel and car tax policies using microdata: evidence from Finland, Sweden and Norway
Publications of the Government’s analysis, assessment and research activities 70/2018.

Liikenteeseen ja autoiluun liittyvien verojen simulointimallin rakentaminen
Valtioneuvoston selvitys- ja tutkimustoiminnan julkaisusarja 71/2018.

More information:

Tuomas Kosonen, Research Director, PT. tel. +358 (9) 2535 7333
Marita Laukkanen, Chief Researcher, Research Leader VATT. tel. +358 295 519 429
Sanni-Sandra Hellman, Senior Actuary, Statistics Finland. tel. +358 295 513 210