Vehicle type choice and differentiated registration taxes

Differentiated vehicle taxes are considered as a useful tool for promoting environmental friendly vehicles. Such a tax was introduced in Denmark in 2007. During 2007, the pattern in new vehicle purchases in Denmark changed toward more diesel vehicles and more fuel-efficient vehicles. We analyse to what extent the 2007 vehicle tax reform may explain these changes in purchasing behaviour using a discrete choice model. The model allows us to simulate the effect of price changes that resemble those induced by the tax reform. The analysis shows that the reform only changes purchase patterns slightly. The changes in fuel prices during the year induce a similar minor effect in our simulation. We conclude that while the tax reform appeared in the same year as a large increase in fuel efficiency, it only explains a small part of the shift in fuel efficiency that happened.