The choices of transport that households make are important in determining the type of fuel taxes.
Many countries in the developing world have in the recent past witnessed an increasing vehicular population due to increased preference for private transport as a result of improved incomes and resultant wealth effect among the middle and upper class strata of the population. The public transport system is in most cases disorderly and many of those individuals and households who could otherwise be using public transport system end up buying private cars, which do not only lead to high congestion in the cities but also pollution due to increased consumption of gasoline. Therefore, these countries need to come up with policies that promote public transport and mass transit and discourage private ownership of vehicles.
This paper basically estimates a discrete choice model for transport demand to determine the choices households make in their travel needs and how this influences transport fuel consumption. Secondly, it provides an analysis of demand elasticities and lastly, it seeks to establish the distributional effects of fuel taxes and comments on fuel tax regime for developing countries that are currently experiencing unprecedented vehicular growth and importation of used vehicles that already have done a high mileage. The elasticity analysis finds that the long run elasticity for fuel demand is twice that of short run demand. The distributional analysis finds that transport fuel taxes in Kenya are not regressive but progressive.