Car notches: Strategic automaker responses to fuel economy policy
AbstractNotches – where marginal changes in behavior lead to discrete changes in a tax or subsidy – figure prominently in many policies. In this paper, we analyze notches in fuel economy policies, which aim to reduce negative externalities associated with fuel consumption. We provide evidence that automakers respond to notches in the Gas Guzzler Tax and mandatory fuel economy labels by precisely manipulating fuel economy ratings so as to just qualify for more favorable treatment. We then describe the welfare consequences of this behavior and derive a welfare summary statistic applicable to many contexts. In brief, notches are an inefficient substitute for smooth policies because they create marginal incentives that vary among decision makers and induce some individual actions that have negative net social benefits.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 96 (2012)
Issue (Month): 11 ()
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Web page: http://www.elsevier.com/locate/inca/505578
Notches; Fuel economy; Externalities; Corrective taxation;
Other versions of this item:
- James M. Sallee & Joel Slemrod, 2010. "Car Notches: Strategic Automaker Responses to Fuel Economy Policy," NBER Working Papers 16604, National Bureau of Economic Research, Inc.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
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