Abstract

This paper evaluates the effects of the Swedish aviation tax on the price and demand for international air travel using the synthetic control group method. In addition, it estimates the price elasticity of international air travel from Sweden using web-scraped price data and an instrumental variable approach to account for the simultaneity bias in the price and passenger demand relationship. The effects of the tax are bigger than expected, with the effects on passengers increasing over time after the introduction and the effects on the prices starting high and then decreasing. The estimated price elasticity is -0.76, which together with the price effects of the tax accounts for the reduction in international travel the first three quarters after the introduction. The increase in passenger effects while the price effects diminishes indicates that there in addition to the price effect of the tax is a symbol effect that are affecting the behavior of the Swedish travelers. A potential "Greta Thunberg"-effect is also considered, and no direct evidence for such an effect are found. In contrast to other recent papers, no "leakage effect" of the tax, i.e. that passengers avoid the tax by going to neighboring countries, is found.

Keywords

Aviation tax; tax effects; synthetic control group method; price elasticity

Published in

Working Paper Series / Swedish University of Agricultural Sciences, Department of Economics
2021, number: 2021:02
Publisher: Department of Economics, Swedish University of Agricultural Sciences

Authors' information