Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2013:14: Empirical analysis of moral hazard: a study of a vehicle insurance tax reform

Sherzod Yarmukhamedov ()
Additional contact information
Sherzod Yarmukhamedov: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: This paper uses discrete choice and count data models to analyze the effects of a tax on vehicle insurance levied in Sweden in 2007. The analysis is based on a large set of micro-level panel data on individual insurance holders at the largest insurance company in Sweden for the period 2006-2010. Two questions are addressed: How did the tax reform influence the choice of insurance coverage, and how did changes in coverage affect the incidence of claims? The results show that, on average, the tax reform increased the odds of choosing lower insurance coverage by 47 percent, and that the tax reform had more impact on older drivers. However, switching to lower coverage due to the tax reform has not resulted in significant changes in claim distributions, though the incidence of claims decreased by 20 percent for switchers aged 35-44 in the pre-reform period, indicating a mitigation of ex ante moral hazard in vehicle insurance.

Keywords: Vehicle insurance; Moral hazard; Traffic safety; Tax reform

JEL-codes: C33; C54; D82; H20; L51

46 pages, September 19, 2013

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