The Environmental Consequences of Tax Differentiation by Vehicle Age in Costa Rica

This paper provides an overview of the potential environmental benefits in Costa Rica of increasing the relative tax rate on imported used cars. Analysis of this policy instrument has been chosen because Costa Rican fiscal policy has traditionally favoured the import of used cars. Moreover, a tax which differentiates between new and used cars can be a good proxy for taxes based directly upon emission levels. The results of the simulation reveal considerable environmental benefits in terms of nitrogen oxides, hydrocarbons and carbon monoxide emissions.