The Impact of car Taxation on Carbon Dioxide Emission in Selected Countries of the European Union

One of the most important greenhouse gases is CO2. Based on statistical evidence, the transport sector has a remarkable contribution to CO2 emission. Vehicle taxation is basically regarded as a tool which may control CO2 emissions. Theoretically, car taxation inclines consumers’ interest towards purchasing less-polluting vehicles with less tax burden. However, empirically the question arises as whether vehicle taxes could combat carbon dioxide emission and if so which form of veicle taxes would be the most effective one? In this paper, by using the panel data method, the impact of car acquisition and ownership taxes on carbon dioxide emissions of new cars is studied in the 14 member countries of the European Union over 2007 to 2012. The results suggest that implementating these two types of taxes has a significant and negative impact on CO2 emission, provided that CO2 parameter included in the tax base. Furthermore, the simultaneous implementation of these taxes could be more effective in reducing CO2 emission produced by cars.