The Distributional Impacts of Environmental Reforms on Private Transportation in Ireland

Abstract

This paper provides the first empirical estimation of cross-price elasticities of public and private transportation using a fully flexible demand system and Irish data. Focusing on vehicle owners, in line with the existing literature, the results show that these commodities are complements. This paper also finds that additional carbon taxation is not as regressive as previously found, when the externality cost associated with driving is included in the metric of the tax incidence. A lump-sum transfer and subsidies for public transit can reduce the disproportional burden imposed on low-income households by the carbon tax. However, it is shown that subsidies need to be targeted because benefits are not accrued disproportionally by low-income households, and this can reduce environmental savings from carbon taxes.