Does vehicle purchase tax effectively restrict car ownership and promote public transport?

Abstract

Vehicle purchase tax (VPT) has emerged as an effective fiscal tool to restrict car ownership and is widely deployed in several countries. Though empirical findings show that VPT can reduce the heavy reliance on private cars, the analytical model exploring the impact of VPT on car ownership and subsequent public transport is quite lacking. To address this gap, we develop a game-theoretic model to quantitively test the effectiveness of VPT in car ownership restriction and public transport promotion. The proposed model derives the optimal strategies of players in the transport market levying VPT and demonstrates the relationship between the tax rate and travel demands/shares. Analytical results verify the advantages of VPT with the modal shift from self-driving to public transport. Policy implications are further discussed concerning how to encourage this modal shift from the perspective of governance.