The air passenger tax : an empirical analysis of the effect of the air passengers tax on air-traffic volumes for domestic routes in Norway

Abstract

This master’s thesis seeks to analyse the effect of the Air Passenger Tax, introduced by the Norwegian government in 2016 on all flights departing a Norwegian airport. The future of the Air Passenger Tax is of current political interest with potential change of the tax toward a greener agenda as a frequently discussed topic. This thesis employs panel data techniques where we have designed econometric models that are based on a dataset where we follow the development of the number of daily passengers on a route with a specific airline. The models estimate the effect of the Air Passenger Tax on the air-traffic volume in terms of number of daily passengers in the 2012 to 2019 period. To isolate the effect of the tax, we have included variables that we assume explain the variation in demand for flights. The results of the study show the effect of APT to be insignificant when evaluating the airtraffic volumes. Furthermore, when considered individually, Norwegian is shown to be the only airline with a change in passenger volume that is significantly different from zero at positive 6.87 %. This is surprising as similar studies conducted in other European countries have shown significant reductions in passenger volume following the introduction of similar taxes. This thesis explores possible explanations based on the high level of domestic competition and the heavy reliance on flying as a means of domestic transport as found in past research on adjacent topics.