The implications of air travel taxes

Abstract

In recent years, air travel taxes have been introduced by different countries throughout Europe. Often, these tax measures serve a revenue-raising goal, but are promoted as measures that aim to cut back carbon emissions by the aviation industry. Their effectiveness with respect to the reduction of carbon emissions is limited, however. After all, it holds no incentive for airlines to actively reduce emissions. The paper shows that the level of ‘pass through’ is of substantial importance for the effects that result from this introduction. Passenger reactions as a result of (partial) pass through include demand reduction, modal shift, origin airport shift and destination shift. The sum of the environmental effects is expected to be limited or even negative. Finally, the introduction of air travel taxes leads to revenue loss for airports and the tourist industry and to tax revenues for the government. On the other hand, governments face decreasing VAT and profit tax revenues and increasing unemployment expenses.