Fiscal Sustainability and Distributional Equity of Transport Taxes under Electric Vehicle Transition: A Micro-Simulation Study of Fuel and VMT Taxes in South Korea

As international pressure to achieve carbon neutrality intensifies, electric vehicle (EV) adoption has become a pivotal policy instrument for decarbonizing the transportation sector. While governments have accelerated this transition through subsidies, the shift is causing a structural erosion of fuel tax revenues, threatening the sustainability of transportation infrastructure funding. Furthermore, the concentration of EV adoption among high-expenditure households skews policy benefits toward upper-income groups, while the fuel tax burden remains disproportionately on lower-expenditure households, raising concerns about distributional equity.

This study empirically analyzes the impact of EV expansion on the fiscal sustainability and distributional equity of transportation tax systems. Using survey data from 700 South Korean vehicle-owning households in 2024, we conducted dynamic simulations through 2050, integrating household-level EV adoption intentions and transition timing. We compared two scenarios: maintaining the current fuel tax system versus a full transition to a vehicle miles traveled (VMT) tax.

The analysis reveals that higher-expenditure households adopt EVs earlier and prioritize replacing secondary vehicles, confirming structural heterogeneity in transition behavior. Under the current fuel tax regime, transportation tax revenue is projected to decline by 10% by 2050, with the Kakwani index deteriorating from -0.611 to -0.644, indicating significant intensification of regressivity. While the VMT tax ensures superior revenue stability, it exhibits even stronger initial regressivity (Kakwani index of -0.645) compared to the fuel tax (-0.611) under identical driving patterns.

These findings challenge the conventional wisdom that VMT taxes inherently improve equity. In the Korean context, even technologically neutral instruments can exacerbate inequity due to heterogeneous mobility structures and transition pathways. We conclude that future transportation tax reforms must move beyond merely selecting taxation methods and instead focus on sophisticated institutional designs that account for income-specific mobility patterns and transition speeds.