Design, Experiences and Issues
- Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor
Chapter 11: Motor fuel taxation in Central Europe and international tax competition: simulation of motor fuel tax harmonization
The final price of goods influences the volume of goods consumed and, therefore, the related environmental effects. This is especially true for motor fuels. Excise duty and VAT comprise a substantial part of the final price of motor fuels. Hence, these taxes represent corrective taxes that allow achievement of a more efficient allocation of resources by incorporating negative externalities into market prices. Furthermore, motor fuel taxation can help to reduce dependence on foreign energy sources, provide a stimulus for private research and innovation for technological progress that involves the use of renewable energy sources and promotion of energy-saving behaviors, greater use of renewable energies and energy efficient consumption (Brandimarte 2014). Transport taxes contribute significantly to public revenues because they have broad tax bases and high tax rates which can be justified by the environmental externalities (Sally-Ann 2014). However, there is a trade-off between environmental effectiveness and its fiscal role – the more elastic the demand for fuels, the more the revenues will be eroded by behavioural responses. The excise duty tax on petroleum products does not overlap with the EU Emission Trading System as CO2 emissions coming from motor fuel combustion are largely excluded from this regulation (Brandimarte 2014). While there are European Directives setting minimal rates of VAT and excise duty on fuels, the final taxation of fuels differs substantially among European countries (Ward et al. 2013; see also below).
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