Jarkko Harju, VATT

"Missing Miles: Avoidance and Evasion Responses to Car Taxes"

Abstract

We study tax avoidance and evasion responses to extensive import car taxes in Finland. We do this by exploiting a series of policy reforms in Finland, by utilizing novel third-party comparison information, and by analyzing a randomized control trial that varies the salience of the third-party information and a public disclosure program that renders less attractive car tax evasion achieved by overstating the mileage of imported used cars.

The results suggest that car taxes in Finland induce car buyers to avoid some of the taxes by importing used cars from other countries without a high car import car tax. Moreover, we find systematic evidence of tax evasion in the form of “missing miles.” The tax evasion leads to a significant loss of tax revenue and is positively related to CO2 emissions and the tax rate. Increasing the salience of the anti-evasion initiatives reduced reported the overstatement of mileage.