Working Paper: NBER ID: w21194
Authors: Jeremy West; Mark Hoekstra; Jonathan Meer; Steven L. Puller
Abstract: A major concern with addressing the negative externalities of gasoline consumption by regulating fuel economy, rather than increasing fuel taxes, is that households respond by driving more. This paper exploits a discrete threshold in the eligibility for Cash for Clunkers to show that fuel economy restrictions lead households to purchase vehicles that have lower cost-per-mile, but are also smaller and lower-performance. Whereas the former effect can increase driving, the latter effect can reduce it. Results indicate these households do not drive more, suggesting that behavioral responses do not necessarily undermine the effectiveness of fuel economy restrictions at reducing gasoline consumption.
Keywords: fuel economy; vehicle miles traveled; Cash for Clunkers; regression discontinuity design
JEL Codes: L91; Q41; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fuel economy improvements (R48) | Vehicle miles traveled (VMT) (R48) |
| Eligibility for the CFC program (F53) | Purchase of more fuel-efficient vehicles (R48) |
| Purchase of more fuel-efficient vehicles (R48) | Utility of driving (R48) |
| Utility of driving (R48) | Vehicle miles traveled (VMT) (R48) |
| Fuel economy improvements (R48) | Gasoline consumption (L94) |