Should Commuting Expenses Be Tax Deductible? A Welfare Analysis

Wrede, Matthias

doi:10.1006/juec.2000.2185

“…First, there is a number of studies which analyse the welfare properties of commuting subsidies, for instance, Brueckner (2003), , and Wrede (2000;2001;. Brueckner (2003) uses a spatial model like ours and finds that subsidising transport is inefficient (see also Fujita, 1989).…”

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confidence: 99%

Political economy of commuting subsidies

Borck

¹

,

Wrede

²

2005

Journal of Urban Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may POLITICAL ECONOMY OF COMMUTING SUBSIDIES AbstractWe study the political economy of commuting subsidies in a model of a mono-centric city with two income classes. Depending on housing demand and transport costs, either the rich or the poor live in the central city and the other group in the suburbs. Commuting subsidies increase the net income of those with long commutes or high transport costs. They also affect land rents and therefore the income of landowners. The paper studies how the locational pattern of the two income classes and the incidence of landownership affects the support for commuting subsidies.JEL Code: R14, R48.

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“…Advocates of income tax deductions 2 emphasize that they reduce distortions concerning individual labor supply (Wrede, 2000;Wrede, 2001;Sinn, 2003), eliminate spatial misallocations in particular concerning working location decisions (Gasche, 2006;Wrede, 2009), or improve aggregate productivity if it is spatially di¤erentiated (Wrede, 2009, Borck andWrede, 2009). In contrast, objections against tax deductions arise (i) since commuting subsidies might induce negative externalities and, thus, constitute a 'bad' , (ii) for reasons of equity because high-income households bene…t the most (e.g.…”

Section: Introductionmentioning

confidence: 99%

“…However, the urban/transport economics literature lacks in quantitative studies analyzing economic and spatial e¤ects regarding tax deductibility of commuting expenses. Even in technical papers employing modeling approaches (Wrede, 2001;Wrede, 2009) the optimal size of the deductions is debatable because it depends on the speci…c features (not) implemented in the theoretical models. Therefore, optimal deduction rates are not yet fully derived since the di¤erent lines of reasoning are yet not integrated in one uni…ed approach.…”

Section: Introductionmentioning

confidence: 99%

Income Tax Deduction of Commuting Expenses and Tax Funding in an Urban CGE Study: The Case of German Cities

Hirte

¹

,

Tscharaktschiew

²

2011

SSRN Journal

7

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractGermany like many other European countries subsidize commuting by granting the right to deduct commuting expenses from the income tax base. This regulation has often been changed and has regularly been under debate during the last decades. The pros (e.g. causing e¢ ciency gains with respect to the spatial allocation of labor) and cons (e.g. causing urban sprawl) are well documented. Nonetheless, there is need for further research. For reasons of tractability the few models applied in the tax deduction related literature are based on restrictive assumptions particularly concerning the design of the income taxation scheme and the structure of households (neglecting household heterogeneity) and, most importantly, they do not integrate labor supply and location decision problems simultaneously. Here, for the …rst time, those and more features are taken into account in a full spatial general equilibrium simulation approach calibrated to an average German city. This model is applied to calculate the impacts of tax deductions on an urban economy thereby considering di¤erent funding schemes. Our results suggest that the tax deduction level currently chosen is below the optimal level in the case of income tax funding. If a change in the tax base occurs, e.g. toward consumption tax or energy tax funding, the optimal size of the subsidy should be even higher. Furthermore, the di¤erent policy packages cause a very di¤erentiated pattern regarding welfare distribution, environmental (CO 2 emissions) and congestion e¤ects. We also …nd surprisingly small e¤ects on urban sprawl characterized by suburbanization of residences and jobs and increasing commuting distances.JEL classi…cation: C68; R12; R13; R14; R20; R51

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“…The most striking example is the treatment of commuting expenses. For some countries they are considered to be deductible expenses while for others they are not (Wrede, 2001, p. 80). The United States and the United Kingdom are prominent examples treating traveling expenses to work as not deductible items.…”

Section: Introductionmentioning

confidence: 99%

“…This becomes apparent just by comparing the contributions of Baldry (1998) and Wrede (2001). The former concludes that "on balance, there is a strong case against employee tax-deductibility of wage-related expenses on both efficiency and equity grounds" whereas the latter derives the result that commuting expenses should be deductible by more than one hundred percent given certain assumptions concerning mobility and taxation.…”

Section: Introductionmentioning

confidence: 99%

Efficiency effects of tax deductions for work-related expenses

Richter

¹

2006

Int Tax Public Finan

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may EFFICIENCY EFFECTS OF TAX DEDUCTIONS FOR WORK-RELATED EXPENSES AbstractIn this paper it is shown that allowing the deduction of work-related expenses has a strictly positive effect on tax efficiency only if two conditions hold jointly: (i) The expenses should be interpretable as real cost and (ii) the expenses should be required for increasing taxable income. Otherwise deductions are inefficient, neutral or ambiguous. Thus it is argued that the cost of commuting to work should not be deductible as commuting does not increase taxable income. The efficiency enhancing effect of deducting other expenses like educational ones or expenses for housework and child care is challenged on the grounds that these expenses are largely pecuniary costs.JEL Code: H21, H24.

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Should Commuting Expenses Be Tax Deductible? A Welfare Analysis

Cited by 37 publications

References 5 publications

Political economy of commuting subsidies

Political economy of commuting subsidies

Income Tax Deduction of Commuting Expenses and Tax Funding in an Urban CGE Study: The Case of German Cities

Efficiency effects of tax deductions for work-related expenses

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