In January 1998, the commission of the European Union (EU) sentenced the German car manufacturer Volkswagen to pay € 102 million, since the company had violated the European regulations of competition. 1 It had ordered its non-German subsidiaries not to sell vehicles to German clients. These were interested in purchasing cars abroad for the reason that the list price was cheaper in the bordering countries. A second aspect in acquiring a vehicle abroad is the different tax systems in the member states of the European Union. Additionally to the differences in the Valueadded taxes (VAT), there are also variations when it comes to supplementary taxes levied on luxury items. Some countries insisting on such a luxury tax are Denmark or the Netherlands. When importing a product from a country with luxury taxes into a country without luxury taxes, the taxes can be claimed back. Only the taxes of the importing country have to be paid. These two features cause the acquisition of a car from a foreign EU-country to be an interesting alternative for many people residing in a land with high prime costs in the automotive industry. One of these countries where a car purchase requires a high initial outlay is Germany. Because of the geographical situation, many Germans, when considering buying a vehicle, drive to Denmark or the Netherlands. The Netherlands, for example, have a special 45% luxury tax ( Belasting van personenauto's en motorrijwielen, BPM 2 ) on automobiles. In order for manufacturers and importers to survive, they make a special effort to price t heir vehicles competitively. As a result of this most tax-free prices in Holland are lower than anywhere else. The savings can be up to 20-25%. 3 This option is very likely to change the distribution of welfare within Germany. This effect raises the question: How do the most prevalent theories view this opportunity and the resulting change in distribution? In order to answer this question, this paper will proceed as follows. First, the concept of a luxury tax will be explained and evaluated. Second, the most likely effect of the above -mentioned opportunity on the distribution of welfare will be outlined. Third, the theories of John Rawls, the Utilitarians, and the Libertarians will be introduced and applied to the case. Before providing some concluding thoughts, an overview and some further thoughts will be provided.
Table of Contents
1. Introduction
2. Luxury Tax
3. Effect on the Distribution in Germany
4. The Main Theories of Distributional Justice
4.1 John Rawls
4.1.1 A Theory of Justice
4.1.2 Rawls and Cars
4.2 Utilitarianism
4.2.1 The Utilitarian Theory
4.2.2 Utilitarianism and Cars
4.3 Libertarianism
4.3.1 Anarchy, State, and Utopia
4.3.2 Nozick and Cars
5. Further Comments
6. Conclusion
Objectives and Research Focus
The paper examines the economic and ethical implications of purchasing vehicles abroad to avoid domestic luxury taxes, specifically focusing on how this behavior affects welfare distribution within Germany. It aims to evaluate this phenomenon through the lenses of three major philosophical frameworks to determine whether such cross-border acquisitions are considered just.
- Analysis of luxury tax functions and their impact on market behavior.
- Evaluation of welfare distribution changes caused by cross-border car purchases.
- Application of John Rawls’ Theory of Justice to the scenario.
- Assessment of the case from a Utilitarian perspective regarding total happiness.
- Examination of the Libertarian "laissez-faire" approach and individual property rights.
Excerpt from the Book
4.1.2 Rawls and Cars
After reviewing John Rawls’ theory, the floor is now prepared for the application to the case at hand. According to the theory did the three persons (A, B, and C) agree on some ground rules, saying that they signed a social contract. In this it would be stated that they comply with the principles of justice. Therefore, they gave the right of liberty priority over the right of wealth.
One important point to elaborate on is the inequality that exists between the three people. This inequality must (especially) be to the benefit to person C. It could be that person A is a doctor and is therefore entitled to more money. Person C would benefit from the availability of medical care and consequently surrender monetary equality. The disproportionate distribution of wealth would hence have happened in order to make the least favorite better off, since the quality of his live did now increase. A second assumption crucial to Rawls’ theory is that the distribution of wealth must have been agreed upon under the veil of ignorance.
After describing the required structure of the German society in order for Rawls’ theory to hold, the effect of the shift in distribution on justice will now be evaluated. Considering this possible effect on justice, it is obvious that it is the liberty of person B to make a weekend trip to the Netherlands in order to acquire the car. The more pressing question is, whether the liberty of person A and person C have been violated. According to Rawls, the position of person A would – under the condition that it is not worsened to the extent that person A would afterwards be the least favorite – not matter. Person A had the same chance to go to the Netherlands and buy the car there and he is not the worst off, so his situation is not the decisive factor. Person C on the other hand, who is the worst off, must not be discriminated from the change in distribution. But as stated in section three, person C has to deal with the social cost of the increased environment pollution while not being compensated for it. He is thus worse off than before. Also, the jealousy person C might be feeling after figuring that he is now the only person not owning the desired car, puts him in a worse condition. This is not in line with Rawls’ second principle of justice. Rawls would hence object to the possibility of acquiring the car in the Netherlands.
Summary of Chapters
1. Introduction: Presents the background of EU competition regulation and the trend of buying cars abroad to avoid high national taxes.
2. Luxury Tax: Explains the purpose of luxury taxes as governmental revenue, resource regulation, and a tool for distributional justice.
3. Effect on the Distribution in Germany: Outlines a scenario involving three individuals with different financial capacities to assess the social and environmental consequences of purchasing cars abroad.
4. The Main Theories of Distributional Justice: Explores the philosophical frameworks of Rawls, Utilitarianism, and Libertarianism, applying them to the vehicle acquisition case.
5. Further Comments: Discusses the limitations of the current analysis and notes the increasing trend of cross-border car shopping due to European integration and the internet.
6. Conclusion: Summarizes the findings, noting that each theory provides a different justification for or against the current car-buying practices.
Keywords
Distributional Justice, Luxury Tax, John Rawls, Utilitarianism, Libertarianism, European Union, Welfare, Social Contract, Veil of Ignorance, Property Rights, Economic Inequality, Cross-border Trade, Environmental Pollution, Marginal Utility, Fairness.
Frequently Asked Questions
What is the primary focus of this paper?
The paper explores the socioeconomic effects of consumers avoiding domestic luxury taxes by purchasing vehicles in neighboring EU countries and evaluates this behavior using three major theories of justice.
Which philosophical theories are applied to the case?
The work applies the theories of John Rawls (Justice as Fairness), Utilitarianism (maximizing total happiness), and Robert Nozick’s Libertarianism (entitlement theory).
What is the central research question?
The study asks how prevalent theories of distributional justice view the opportunity of purchasing luxury goods abroad and the resulting shift in welfare distribution within a country like Germany.
Which methodology is utilized?
The author uses a theoretical application approach, creating a model with three hypothetical individuals (A, B, and C) to analyze how different philosophical frameworks evaluate the consequences of their financial decisions.
What does the main body of the work cover?
The main body details the concept of luxury taxation, models the impact on specific social groups, and systematically applies Rawlsian, Utilitarian, and Libertarian principles to determine the morality of the individuals' actions.
Which keywords characterize this study?
Key terms include Distributional Justice, Luxury Tax, Rawlsian Theory, Utilitarianism, Libertarianism, and European Market integration.
How does John Rawls' theory specifically assess the car purchase?
Rawls would object to the purchase because it violates the principle that inequalities must benefit the least favored individual; in this scenario, the least favored person suffers from pollution and jealousy without compensation.
Why might a Utilitarian approve of the car purchase?
A Utilitarian would approve if the increase in happiness for the person who can now afford the car outweighs the decrease in utility for those suffering from increased environmental pollution and social envy.
- Quote paper
- Maria Kimme (Author), 2002, The Driving Dutchman - An Application of the Prevalent Theories of Distributional Justice, Munich, GRIN Verlag, https://www.grin.com/document/34941
