Aviation Taxation

Well, yes, there is this problem of diverting to the Continent:

The Treasury has proposed three bands: travel within most of Europe, flights of up to 3,000 miles and those of more than 3,000 miles.

British airlines fear that the changes could lead to millions of passengers taking their business abroad, choosing to change planes at continental hubs such as Amsterdam or Frankfurt rather than London.

The solution to which is of course that our fellow EU members should be adding similar taxes to flights originating upon their own soil. Hmm, actually, that leads to an intersting coordination problem. Which government should get the tax? The country or origination? Or of destination?

The basic principle of the taxation though, a simple Pigou tax upon environmental externalities, is entirely sound (we can still argue at what rate it should be imposed, but that\’s very much another matter). Further, the imposition of the tax on the flight, rather than the passenger, is equally sound, an advance upon the previous system. Not least because it brings freight flights into the net.

Plans to overhaul tax paid by airline passengers could add £170 to the cost of a long-haul holiday for a family of four, airlines have warned.

They said that Treasury proposals to raise charges on environmental grounds could make overseas travel an increasingly costly luxury.

Passengers who have to change planes to complete their journey would be worst hit, because the Government wants to impose a tax on every flight to discourage planes from flying half-empty.

There is one thing which I think many miss though. After we\’ve imposed a Pigou tax (at that arguable rate) then we need to do nothing else at all about aviation. We don\’t need to limit flights, we can build as many airports and runways as we like. As long as people are paying the full and total cost of their activities then we can safely leave markets to do their stuff and we\’ll end up with the socially optimal outcome.

That means that with this taxation in place then we can tell the likes of Plane Stupid to bugger off. The polluter is paying so please, do shut up and go and do something more useful.

The basic logic thus established we can now start the more interesting argument: what should the rate be? Nordhaus\’ $7 a tonne CO2 (ie, vastly lower than proposed) or Stern\’s $85 per tonne (roughly right for the proposal)? Note, please, that if it is that latter, then we really hav finished the debate over aviation and climate change.

 

 

4 thoughts on “Aviation Taxation”

  1. British airlines fear that the changes could lead to millions of passengers taking their business abroad, choosing to change planes at continental hubs such as Amsterdam or Frankfurt rather than London.

    …and if the Dutch and the Germans are more willing than Londoners to put up with the negative externalities of aviation, then good luck to them.

  2. “Who gets the tax?” daft question.

    The local council(s) should charge fees for each taking off/landing (a pair of ‘slots’ as they are known in the trade).

    Quite where those ‘planes fly to is neither here nor there. If they fly to an airport in another country (or another part of the country) then the local council at the other end also levies a charge for landing/taking off.

    I shall shamelessly link to the relevant bit of the MW manifest0 again.

  3. The tax rate would not necessarily be fixed over time. The tax is of course fixed at the rate that is estimated to induce the appropriate emission reductions. If these are not forthcoming, then the tax may be subject to rise in the future. In which case, the debate about aviation and climate change might not necessarily be over (particularly given additional uncertainties relating to estimating the potential damage associated with airline emissions).

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