Taxi Market Deregulation - The Finnish Case
Kankaanranta, Ida (2021)
2021
Kauppatieteiden maisteriohjelma - Master's Programme in Business Studies
Johtamisen ja talouden tiedekunta - Faculty of Management and Business
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Hyväksymispäivämäärä
2021-01-12
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tuni-202012319243
https://urn.fi/URN:NBN:fi:tuni-202012319243
Tiivistelmä
The Finnish taxi market was deregulated from the beginning of July 2018, in line with the model of multiple other Western countries, like the United States, Sweden, the Netherlands, Canada, Ireland and England. Market entry and pricing were liberated and numerical limits for the number of taxi vehicles in a certain area were abandoned. The objectives of the reform were more competitive markets, lower prices, improved quality and better availability of taxi services. However, both theoretical models and empirical results from previous deregulative reforms suggest that as taxi markets are not perfectly competitive and uniform, allowing for free market entry and free pricing may result in opposite outcomes.
Taxi rides are an example of credence goods, due to which service providers may have excessive market power. Furthermore, in taxi markets the customer is not likely to face a large amount of service providers or the service provider a large amount of customers at the same time, like in perfectly competitive markets. Hence, there is no equilibrium price in the absence of market interventions. Deregulating taxi market may also affect demand, if for example uncertainty of prices decreases customers' willingness to use taxi services.
This study examines the effects of taxi market deregulation on taxable income, tax revenues and possible tax evasion on the Finnish taxi markets. The study utilizes a seasonally adjusted difference-in-difference analysis with fixed-effects to compare the evolution of financial variables in taxi and bus companies in 2016- 2018. The data from Statistics Finland includes detailed information of taxi and bus companies' financial statements and tax records, and thus allows an elaborate analysis of the evolution of the companies' income, costs and tax payments. Former studies have mainly concentrated on demand, price, supply or quality, or studied the effects on taxi drivers' income and market conditions, but tax issues have not been researched notably. This study contributes the existing literature by providing estimates of the tax revenue effects as well.
The results suggest that after deregulating the markets, there has been a drop in taxi companies' reported revenue and tax payments, and this drop is statistically significant when compared to the evolution of bus companies' revenue. However, there is no decrease in labor costs or variable costs of the taxi companies, which suggests that a drop in demand does not explain decreasing tax revenues. The reports of Transport and Communications Agency Traficom also show that the prices of taxi rides have been increasing after the reform, so lower prices should also not cause this drop in tax revenues.
The peculiar results raise a question of a possible increase in tax evasion and clearly demand for more research on the issue. A detailed analysis of all the effects of market reforms should be used as a base for further reforms of taxi markets, and also when considering deregulating other markets as well.
Taxi rides are an example of credence goods, due to which service providers may have excessive market power. Furthermore, in taxi markets the customer is not likely to face a large amount of service providers or the service provider a large amount of customers at the same time, like in perfectly competitive markets. Hence, there is no equilibrium price in the absence of market interventions. Deregulating taxi market may also affect demand, if for example uncertainty of prices decreases customers' willingness to use taxi services.
This study examines the effects of taxi market deregulation on taxable income, tax revenues and possible tax evasion on the Finnish taxi markets. The study utilizes a seasonally adjusted difference-in-difference analysis with fixed-effects to compare the evolution of financial variables in taxi and bus companies in 2016- 2018. The data from Statistics Finland includes detailed information of taxi and bus companies' financial statements and tax records, and thus allows an elaborate analysis of the evolution of the companies' income, costs and tax payments. Former studies have mainly concentrated on demand, price, supply or quality, or studied the effects on taxi drivers' income and market conditions, but tax issues have not been researched notably. This study contributes the existing literature by providing estimates of the tax revenue effects as well.
The results suggest that after deregulating the markets, there has been a drop in taxi companies' reported revenue and tax payments, and this drop is statistically significant when compared to the evolution of bus companies' revenue. However, there is no decrease in labor costs or variable costs of the taxi companies, which suggests that a drop in demand does not explain decreasing tax revenues. The reports of Transport and Communications Agency Traficom also show that the prices of taxi rides have been increasing after the reform, so lower prices should also not cause this drop in tax revenues.
The peculiar results raise a question of a possible increase in tax evasion and clearly demand for more research on the issue. A detailed analysis of all the effects of market reforms should be used as a base for further reforms of taxi markets, and also when considering deregulating other markets as well.