How to reform a broken taxi market?

Gustaf Palmér // 19 February 2018

High prices, long waiting times, dirty money and drivers at risk of being subjected to violence. These are some of the problems that have characterized the traditional taxi market historically. As developments have advanced, companies within the sharing economy have been able to solve several of these issues.

Estonia, a neighbouring country to Sweden, is a prime example of how to encourage the sharing economy. Estonia has already liberalized their taxi market in order to reap the benefits of new technology, since it solves many of the traditional problems regarding third party verification, safety, payments and efficient matching between driver and passenger. Another interesting point is that the Estonian tax authority cooperates with new actors: data on mileage and fares is reported directly to the authority and the tax is deducted thereafter. Quick and simple.

Unfortunately, Swedish legislation has taken a very different approach. The turmoil around UberPOP and Heetch is in danger of scaring off other companies. Last year, Taxify announced that they do not see Sweden as a suitable environment to launch their service. A state investigation shows that the government is planning to maintain the regulations that benefit vested interests such as the Swedish Taxi Association – enforcing technical requirements which result in an effective ban on technological innovation. The taxi licensing system will remain intact and drivers will have to undergo several special vocational training courses on top of the driving license. Additional demands have also been made that force all taxi drivers to have taximeters, even though the route can be read in the application. These requirements make it virtually impossible for individuals to offer a lift for money. The regulations reduce competition, lower economic growth and force higher prices on consumers. But there are also other, less discussed consequences of curtailing innovation that should be taken into consideration.

A growing taxi market based on the sharing economy is an important bridge into the Swedish labour market for new immigrants and marginalised people, a rarity in a country with one of the highest de facto minimum wages in Europe. The government has promised that Sweden will have the lowest unemployment rate in Europe by 2020. At the same time, it turns down the offer of at least 4,000 jobs in the Stockholm region alone.

From an environmental point of view, reducing competition makes little sense. Today there are about five million cars in Sweden that are used on average one hour per day. At the same time, the production of a car accounts for half of the emissions it will produce. If existing cars were used more efficiently, they could bring significant environmental benefits. An estimate made by Copenhagen Economics shows that deregulation of the taxi market in Stockholm alone would reduce congestion by 8 per cent.

Finally, for a sparsely populated country like Sweden, a deregulation that makes it easy and legal for private individuals to drive a taxi with their own car could benefit the countryside, providing new transport infrastructure as well as more jobs and increased job flexibility.

In the report “A taxi on each driveway”, I show how Sweden could get a cheaper, more efficient and more environmentally friendly taxi market, following Estonia’s example. Estonia’s “lighter-licensing approach” does regulate the sharing economy, but it does so in a manner that won´t inhibit its operation and future growth. It calms the politicians and traditional companies by ensuring that there is a level of cohesion in the requirements made for working conditions and passenger safety, but it also removes unnecessary obstacles to market entry imposed by the state.

The report proposes three things:
– Abolish taxi driver identification and taxi driver license requirements for individuals wishing to offer drive-sharing services via a mobile application. These are absolutely unnecessary entry barriers that do not increase the safety of travellers, but do keep people out of the labour market.
– Abolish technical requirements regarding taximeters for trips booked through digital platforms. If the prize is fixed in advance there is no need to require comparative prizes being displayed in the window.
– Stop the tax hassle. The Estonian example of allowing the new taxi services to report directly to the tax office has greatly facilitated the sector to flourish. It should also be implemented in Sweden.

Deregulation of the taxi market could revolutionise transport infrastructure and increase the opportunities for mobility across the country by placing a (potential) taxi on each man’s driveway.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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