The Effect of Personal Property Taxes on Consumer Vehicle-Purchasing Decisions: A Partitioned Price/Mental Accounting Theory Analysis

Abstract

There has been concern over the impact of vehicle personal property taxes (VPPT) on a consumer's decision to replace a vehicle. Economic models suggest that income and demographic factors have an impact on the number of vehicles owned and that the level of taxation has only a modest impact. However, lower rates for VPPT are associated with a higher percentage of new car registrations. This exploratory study uses a different methodology in analyzing the impact of VPPT on the purchasing decision. Partitioned pricing and mental accounting theories provide a framework for analysis. A questionnaire was mailed to vehicle owners in high VPPT states (HS) and low VPPT states (LS). The perceived relative importance of VPPT on the purchasing decision is examined by comparing VPPT with other factors. Perceptions of the impact of VPPT on vehicle-purchasing decisions are also analyzed. Finally, a comparison is made between the HS and LS. Results suggest that VPPT have less effect on the purchase of a replacement vehicle than other factors. Although respondents opined that VPPT were too high, they had little effect on their decision to purchase a vehicle. However, respondents from HS were more sensitive to VPPT than those from LS.