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Why Truck Distance Taxes are Contagious and Drive Fuel Taxes to the Bottom

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Abstract: This paper analyzes how countries with international and local truck traffic decide to switch from a simple fuel tax system to a dual system of fuel and kilometer taxes. We show what drives a country to switch and how this affects the level of fuel taxes and the incentives for the other countries to also adopt the dual system. The model is partially able to explain the gradual extension of kilometer charging for trucks in Europe. The model also shows that, in the absence of diesel cars, the gradual introduction of kilometer charges will make fuel taxation for trucks virtually disappear and will lead to a system where truck use is (1) taxed mainly based on distance, but (2) is taxed too heavily. When the fuel tax must in addition serve as an externality tax for diesel cars, the introduction of distance charges for trucks will give rise to diesel taxes that are lower than the external cost of diesel cars. For trucks, this leads to a sum of diesel taxes and distance charges that are higher than the external cost of trucks.

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