WHO BENEFITS FROM TAX-ADVANTAGED EMPLOYEE BENEFITS?: EVIDENCE FROM PARKING

by Michael D. Grubb and Paul Oyer

September 2009

ABSTRACT

We use university parking permits to study how employers and workers split the value of employee benefit tax subsidies. Starting in 1998, the IRS allowed employees to pay for parking passes with pre-tax income. This subsidized the parking pass purchases of faculty and staff, but did not affect students. We show that the typical university raised faculty and staff parking rates by 12%-14% extra when it implemented a pre-tax payment system. Some universities offer student-only rates, which did not increase significantly. However, at most universities, the 12%-14% faculty and staff price increase applied equally to students not affected by the tax change. We conclude that university employees captured much of the new tax benefit, that faculty and staff that purchase permits benefited relative to those that do not purchase permits, and that students at universities that do not offer student-only rates (over half our sample of universities) that purchase permits were made strictly worse off relative to those that do not buy permits. We discuss what these results suggest about universities' objectives in setting their parking prices and about the demand for university parking.

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