European economic review vol:51 issue:5 pages:1177-1204
We formulated and numerically evaluated a model of car ownership, car use and public transport use for peak and off-peak hours of the day. The model was used to study the optimal tax structure for passenger transport in Belgium, with special emphasis on the optimal tax treatment of diesel versus gasoline cars. We obtained a number of interesting results. First, if the government can set all fixed and variable transport taxes optimally, the higher marginal external cost of diesel use implies that the optimal tax per kilometre for the use of a diesel car is higher than for the use of a gasoline car. Moreover, high congestion implies that the taxes on car use in the peak period are more than twice their current levels. However, the optimal tax on ownership of a diesel car is some 200E below its current level. Second, if the government uses kilometre taxes that do not differentiate between fuel types, the optimal ownership tax on a diesel car is twice as high as the tax on a gasoline car. Further-more, if political constraints restrict user taxes to their current levels, we find that optimal ownership taxes on diesel cars double, whereas those on gasoline cars rise by 30%. Finally, subsidies to public transport are found to be optimal as long as variable car taxes are not differentiated between periods. (c) 2006 Elsevier B.V. All rights reserved.