Research

Using detailed administrative data on all cars and residents in Finland, we analyze the distributional implications of Finnish motor fuel taxes both across and within income deciles. We measure fuel tax burdens as the share of household income spent on fuel taxes, and estimate household-level burdens using car-level data on odometer readings, fuel economy and car ownership. Finland has some of the highest fuel taxes in the world, allowing us to observe fuel consumption choices made in an environment with significant fuel costs. Contrary to common belief, we find that fuel taxes are not regressive among all households; instead, upper-middle income households bear the highest tax burdens. Fuel taxes are regressive only among the 67 percent of households that own a car, as car ownership is much less common in the lowest income deciles. Most of the variation in tax burdens, however, is found within rather than across income deciles. Differences across income deciles explain only 1.5 percent of the variation in fuel tax burdens. We find that households that are located outside city centers, have children, or include employed people face higher tax burdens within income deciles. While average fuel tax burdens across income deciles could easily be equalized by redistributing the tax revenue, the within-decile differences are nearly impossible to eliminate even with targeted transfers. This is because less than 50 percent of the overall variation in fuel taxes paid is explained by observable household characteristics.

This paper provides novel evidence on the effects of public transportation pricing on car use and CO2 emissions. I analyze a pricing reform in the Finnish capital Helsinki that lowered public transit fares by 45 percent for individuals who ended up living in a specific, newly introduced travel zone. Using a difference-in-differences approach, I compare individuals who received the price reduction to those who lived just outside the travel zone and experienced almost no change in prices. This comparison is made possible by detailed individual-level data on vehicle mileage and ownership, as well as residential locations. I estimate the cross-price elasticity of driving to range between 0.06 and 0.27. However, I find no clear response in car ownership, either at the extensive or intensive margin. Based on a back-of-the-envelope calculation, the cost of reducing emissions with this reform landed in the range of 1000--3000 euros per tonne of CO2.

We use station-level price data and a significant diesel-fuel carbon tax reform to study who bears the economic burden of fuel carbon taxes. We use a difference-in-differences strategy to estimate the pass-through of the large carbon tax increase to retail prices, where we compare retail diesel prices faced by private motorists to retail gasoline prices. We find that on average fuel carbon taxes are less than fully passed through to consumer prices, which suggests that consumers and the supply chain split the burden of these taxes. Using information on station location, we match price observations with postcode-level average incomes and measures of urbanization, and show that there are significant differences in the pass-through rate across areal incomes and between rural and urban areas up to one year after the reform. The effect of fuel carbon taxes on consumer prices decreases with areal income and with the degree of urbanization.