Government revenue from taxes and duties on passenger cars is falling rapidly, partly due to policies that incentivize purchase of vehicles with electric or fuel efficient motors, for which car taxes are low (or zero). If this decline in revenue continues, the Norwegian government will have to consider altering the tax system for passenger cars. At the same time, today’s system is economically inefficient, in that it does not reflect the true costs that car usage inflicts on society.
On behalf of the Norwegian Automobile Importers’ Association, the Norwegian Motor Trade Association and the Norwegian Automobile Federation, Oslo Economics has analyzed different schemes for GNSS road pricing, based on the social costs of car usage. We have developed a revenue-neutral system for road pricing where the road price is differentiated over time, space and type of vehicle, so as to better align the private costs of car usage with the social costs. Our model penalizes driving in densely populated areas and during congested hours, but gives a lower cost per kilometer for driving that happens outside population centers. Electrical vehicles are taxed more heavily than in today’s system, because they are no different from other cars with respect to costs related to car accidents and congestion. We also analyze distributional consequences of our system, and show that some groups will be better off, while others will be worse off, largely depending on location and type of vehicle.
