Expenditure on personal mobility (TERM 024) - Assessment published Jan 2011
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Household consumption (Primary topic)
Typology: Descriptive indicator (Type A - What is happening to the environment and to humans?)
- TERM 024
Key policy question: How much are households spending on transport? What approaches should countries apply to ensure equality but to enable transport demand management of households with different spending patterns and income?
The share of household expenditure on transport has been broadly stable over time (when aggregated across countries and income bands). Data suggest that increased fuel prices have given rise to increased expenditure on operational costs, and decreased purchases of vehicles in recent years. High income groups and economically developed countries spend more on car purchase and transport than do low income groups and countries.
The share of household expenditure on transport appears to remain relatively stable across time and countries, although there are some exceptions. Statistics indicate there was a slight increase in spending through the 70’s and 80’s, which was particularly pronounced for Italy and the UK.
Transport related household expenditure was also stable during the last decade. Data capture for 2009 is currently low, and therefore may not be particularly representative. However, a general increase in the percentage of household expenditure on operation of personal transport equipment (and to a lesser extent transport services) can be seen in recent years. Both increases could be partly caused by rising operational costs in many transport modes, mainly driven by increases to fuel prices. 2008 indicates a corresponding decrease to vehicle purchases (see Figure 1). The rise in the share of transport related expenditure may be explained by two elements. Firstly, it takes time for households to adjust to increases in prices, which have been relatively fast. Secondly the elasticity of transport demand to prices may be lower in relation to other spending areas.
The share of spending on transport for many years appeared to be linked to the increase of personal income. For example, despite vehicle prices falling by around 20% between 1996 and 2008 (see TERM020: transport prices), the percentage of household spending on vehicles has only declined by around 15% (Figure 1). One partial explanation for this trend might be a form of ‘rebound effect’: as Europeans become more affluent, and the real price of vehicles decreases, instead of spending less on the same vehicle they choose to negate some of the price decrease by buying a more expensive vehicle. Another significant factor in the relatively low rate of reduction in average spending on purchase of vehicles, compared with reductions in real vehicle prices, is a rise in car ownership amongst Europeans over the last decade.
Variations can be found between social groups, for example retired people spend significantly less on transport, as do the unemployed (Eurostat, 2010). Travel budgets are also much lower for households without a car. Car ownership levels tend to be lower in lower income groups, and may help to explain the observed differences in proportion of budget spent on travel. With the rise in car ownership in recent times, the average share of expenditures spent on car transport would be expected to rise, which may also explain the small rise in expenditure on operation of personal transport.
If the share of income allocated to transport is constant for the different groups in society, increasing the prices (internalisation) should be seen as a useful tool for governments to influence transport volumes. When income increases faster than transport prices (which has been the case in recent years), transport becomes more affordable; with a stable share of the income allocated to transport, transport volumes increase. However, it is also clear that people not only spend a generally stable fraction of their budget on transport, but also a stable share of their time (Bureau of Transportation Statistics, 2001). As a consequence, travel speed also becomes an important determinant of transport demand, along with costs.
The share of household expenditure on transport services across countries (Figure 2) suggests that a number of different factors affect the levels of expenditure. Whilst households in more economically developed countries are expected to spend more on transport, it is also appears that other factors, such as the size of the country, population density and general distribution of population are also relevant, as is the use of public transport.
For example, the proportion of expenditure allocated to transport in the Netherlands is approximately 2% lower than that in comparable economies such as Germany, the UK and France. This is expected to be due to high population densities in cities and extensive use of bicycles creating both less demand for private car ownership and a reasonably low expenditure on public transport. As another example, Slovenia shows a high overall expenditure, driven by operational costs; the lower household incomes mean that expenditure on fuel becomes proportionally higher.
Current trends show that if transport becomes cheaper, the volume of transport increases. This means that if real incomes rise (a socio-economic goal for any government), demand for transport will continue to rise as long as transport costs decline and people continue to spend a fixed proportion of their income on transport. A good example of this trend is the ‘rebound effect’ that is suggested to occur with more efficient cars. People who buy more efficient cars tend to then start driving more on average because it is cheaper to do so, reducing the benefit of better fuel consumption. It follows that in order to curb emissions from transport, whilst continuing to reduce costs, price/affordability and usage need to be decoupled (Sessa C and Enei R, 2009).
Looking at TERM20, the real price of operation of personal transport equipment has increased, and Fig 1 shows that the proportion of personal expenditure has matched this increase. Although some of this is likely to be due to increases in vehicle ownership levels, it also follows that rather than simply reducing the level of transport in response to increasing prices, people have also to an extent instead devoted more of their personal expenditure to operation of personal transport. This in turn suggests that using financial policies alone to try and reduce personal transport volume may not be fully effective. This is particularly true in relatively wealthy income groups, where increasing the cost of travel results in an increased expenditure being used to maintain a similar level of usage. In less wealthy income groups, lower cost alternatives (including lower levels of travel) may be prioritised. In this way, it is possible that financial policies designed to reduce transport volume may be socially inequitable if they are not carefully designed.
National accounts (Eurostat)
provided by Eurostat - Statistical Office of the European Union (ESTAT)
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