Working Paper: NBER ID: w7059
Authors: Don Fullerton; Sarah West
Abstract: A tax on vehicle emissions can efficiently induce all of the cheapest forms of abatement. Consumers could drive less, buy a smaller car with better gas mileage, use cleaner gasoline, and repair pollution control equipment (PCE). However, the technology is not yet available to measure and tax each car's total emissions. We thus investigate alternative instruments. In a simple model with identical consumers, we show conditions under which the same efficiency can be attained by the combination of a tax on gas, a tax on engine size , and a subsidy to PCE. In a model with heterogeneous consumers, the same efficiency can again be obtained, but only if each person's gasoline tax rate can be made to depend on the characteristics of the car. We solve for these first-best tax rates. Assuming that tax rates must be uniform across consumers, we then characterize second-best tax rates on gasoline and on characteristics.
Keywords: Vehicle emissions; Gasoline taxes; Public economics
JEL Codes: D62; H23; Q28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| gasoline tax (H29) | gasoline consumption (L91) |
| vehicle tax (H25) | vehicle choice (L92) |
| vehicle choice (L92) | emissions (Q52) |
| subsidy (H20) | PCE investment (E20) |
| gasoline tax + vehicle tax (H29) | emissions reduction (Q52) |