Working Paper: NBER ID: w22242
Authors: Soren T. Anderson; James M. Sallee
Abstract: We review what is known about the economic efficiency of fuel taxes relative to efficiency standards aimed at mitigating environmental externalities from automobiles. We present a simplified model of car choice that allows us to emphasize the relationships between fuel economy, other car attributes, and miles traveled. We focus on greenhouse gas emissions, although we note how other environmental externalities affect our conclusions. Our main conclusion—that standards are substantially less efficient than a fuel tax—is already familiar. Less familiar are points we make about the relative importance of the rebound effect, on the effects of attribute-based policies, and the implications of behavioral biases. We point to areas where we believe future research can have the greatest contribution, including work on uncertainty, heterogeneity, and empirical work in low and middle-income countries.
Keywords: fuel taxes; efficiency standards; greenhouse gas emissions; transportation policy; environmental externalities
JEL Codes: H23; Q48; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fuel taxes (H29) | economic efficiency (D61) |
| fuel taxes (H29) | reductions in emissions (Q52) |
| increases in fuel economy (Q41) | increased miles traveled (R41) |
| fuel economy standards (R48) | offsetting benefits (J32) |
| attributebased standards (J80) | raise mitigation costs (H84) |
| attributebased standards (J80) | poorly suited for addressing behavioral biases (D91) |