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Automobile fuel efficiency policies with international innovation spillovers

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  • Philippe Barla
  • Stef Proost

Abstract

In this paper, we explore automobile fuel efficiency policies in the presence of two externalities i) a global environmental problem and ii) international innovation spillovers. Using a simple model with two regions, we show that both a fuel tax and a tax on vehicles based on their fuel economy rating are needed to decentralize the first best. We also show that if policies are not coordinated between regions, the resulting gas taxes will be set too low and each region will use the tax on fuel rating, to reduce the damage caused by foreign drivers. If standards are used instead of taxes, we find that spillovers may alleviate free-riding. Under some conditions, a strict standard in one region may favour the adoption of a strict standard in the other one.

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File URL: http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps08/Dps0817.pdf
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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0817.

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Date of creation: May 2008
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Handle: RePEc:ete:ceswps:ces0817

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Keywords: Environmental policy; automobile; fuel efficiency standard; gasoline tax; innovation spillovers;

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Cited by:
  1. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.

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