EUROPEAN CAR TAXES AND THE CO2 INTENSITY OF NEW CARS.

Since 2000 many European countries have revised their car taxation. Most countries now have a CO2 component in the tax they levy on acquisition, circulation or both. This thesis analyzes the effect of these changes with the use of a reduced-form panel regression model including fixed effects and a structural equation model (SEM). In the reduced-form model outcome, acquisition tax is significant, while ownership tax and gasoline prices are not, meaning that acquisition tax is the most certain in reducing CO2 emissions. It is also the strongest in magnitude. The SEM takes into consideration car characteristics as a mediator and both confirms and clarifies the results of the fixed effects model. Engine power is most important predictor of CO2. Acquisition tax is significant both in its indirect effect through the car characteristics as well as its direct effect on CO2. Ownership taxes have a direct effect on car characteristics but they are not indirect through the car characteristics. Gasoline has a significant direct effect on ccm and kW but is not overall significant in its effect on CO2 intensity.