OuWhile the specific
tax designs differ, the size of all these taxes are (co-)determined by CO2 emissions. Such taxes, however, affect the
marginal costs of car ownership (per year), rather than the marginal costs of emitting CO2—once paid they become
a sunk cost and thus are irrelevant with respect to decisions whether to drive an additional journey, or whether to
save on fuel consumption or not. In addition, while these taxes give people incentives to buy fuel efficient cars, the
related savings on fuel as well as savings on the car tax itself after a car is bought represent a positive income shock.
This may increase the number of kilometers driven and weaken incentives to save on fuel consumption. As a result,
at least part of the positive effects of these taxes on CO2 emissions gets crowded out.
OuWhile the specific
tax designs differ, the size of all these taxes are (co-)determined by CO2 emissions. Such taxes, however, affect the
marginal costs of car ownership (per year), rather than the marginal costs of emitting CO2—once paid they become
a sunk cost and thus are irrelevant with respect to decisions whether to drive an additional journey, or whether to
save on fuel consumption or not. In addition, while these taxes give people incentives to buy fuel efficient cars, the
related savings on fuel as well as savings on the car tax itself after a car is bought represent a positive income shock.
This may increase the number of kilometers driven and weaken incentives to save on fuel consumption. As a result,
at least part of the positive effects of these taxes on CO2 emissions gets crowded out.
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