A case study on Germany's aviation tax using the synthetic control approach

The German Aviation Tax is a tax levied on departing passengers from German airports. In this paper, we investigate the impact Germany's aviation tax has had on passenger numbers using the synthetic control method to generate counterfactual passenger numbers for German airports, and for airports outside Germany but near the German border. The results are consistent with passengers engaging in cross-border substitution in response to the aviation tax. Most tax exempt airports near German borders have made sizeable gains in passenger numbers since Germany introduced its aviation tax. Within Germany there appears to be a clear distinction in the impact on small/regional airports and that on larger hubs. From a policy perspective, the finding of a cross-border substitution effect implies that the aviation tax might not be effective in curbing overall emissions from air travel, whilst also leading to lost tax revenues through the displacement of passengers to neighbouring countries.