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The Taxation of Fuel Economy

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  • James Sallee

Abstract

Policy-makers have instituted a variety of fuel economy tax policies -- polices that tax or subsidize new vehicle purchases on the basis of fuel economy performance -- in the hopes of improving fleet fuel economy and reducing gasoline consumption. This article reviews existing policies and concludes that while they do work to improve vehicle fuel economy, the same goals could be achieved at a lower cost to society if policy-makers instead directly taxed fuel. Fuel economy taxation, as it is currently practiced, invites several forms of gaming that could be eliminated by policy changes. Thus, even if policy-makers prefer fuel economy taxation over fuel taxes for reasons other than efficiency, there are still potential efficiency gains from reform.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16466.

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Date of creation: Oct 2010
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Publication status: published as James M. Sallee, 2011. "The Taxation of Fuel Economy," Tax Policy and the Economy, University of Chicago Press, vol. 25(1), pages 1 - 38.
Handle: RePEc:nbr:nberwo:16466

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  1. Soren T. Anderson & James M. Sallee, 2011. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," American Economic Review, American Economic Association, American Economic Association, vol. 101(4), pages 1375-1409, June.
  2. Carolyn Fischer & Winston Harrington & Ian W.H. Parry, 2007. "Should Automobile Fuel Economy Standards be Tightened?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 1-30.
  3. Ian W. H. Parry & Margaret Walls & Winston Harrington, 2007. "Automobile Externalities and Policies," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 45(2), pages 373-399, June.
  4. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2009. "Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets," NBER Working Papers 15590, National Bureau of Economic Research, Inc.
  5. Fullerton Don & West Sarah E, 2010. "Tax and Subsidy Combinations for the Control of Car Pollution," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 10(1), pages 1-33, February.
  6. Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
  7. Lawrence H. Goulder & Mark R. Jacobsen & Arthur A. van Benthem, 2009. "Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits," NBER Working Papers 15337, National Bureau of Economic Research, Inc.
  8. Gloria Helfand & Ann Wolverton, 2011. "Evaluating the Consumer Response to Fuel Economy: A Review of the Literature," NCEE Working Paper Series, National Center for Environmental Economics, U.S. Environmental Protection Agency 200904, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Apr 2011.
  9. Chandra, Ambarish & Gulati, Sumeet & Kandlikar, Milind, 2010. "Green drivers or free riders? An analysis of tax rebates for hybrid vehicles," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 78-93, September.
  10. Bento, Antonio M. & Goulder, Lawrence H. & Jacobsen, Mark R. & von Haefen, Roger H., 2007. "Distributional and Efficiency Impacts of Increased U.S. Gasoline Taxes," Working Papers, Cornell University, Department of Applied Economics and Management 127021, Cornell University, Department of Applied Economics and Management.
  11. Li, Shanjun & Linn, Joshua & Spiller, Elisheba, 2010. "Evaluating “Cash-for-Clunkers”: Program Effect on Auto Sales, Jobs, and the Environment," Discussion Papers, Resources For the Future dp-10-39, Resources For the Future.
  12. Turrentine, Thomas S. & Kurani, Kenneth S., 2007. "Car buyers and fuel economy?," Energy Policy, Elsevier, Elsevier, vol. 35(2), pages 1213-1223, February.
  13. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, Elsevier, vol. 88(3-4), pages 735-757, March.
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Cited by:
  1. Adriaan Perrels & Tarja Tuovinen, 2012. "The Effectiveness of Differentiation of the Finnish Car Purchase Tax according to Carbon Dioxide Emission Performance," Research Reports 168, Government Institute for Economic Research Finland (VATT).
  2. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," NBER Working Papers 17766, National Bureau of Economic Research, Inc.
  3. 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.
  4. Tsvetanov, Tsvetan & Segerson, Kathleen, 2013. "Re-evaluating the role of energy efficiency standards: A behavioral economics approach," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 347-363.
  5. Kenneth Small, 2011. "Energy Policies for Passenger Motor Vehicles," Working Papers 101108, University of California-Irvine, Department of Economics.
  6. Adamos Adamou & Sofronis Clerides & Theodoros Zachariadis, 2011. "Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany," Working Papers, Fondazione Eni Enrico Mattei 2011.96, Fondazione Eni Enrico Mattei.
  7. Hunt Allcott & Nathan Wozny, 2012. "Gasoline Prices, Fuel Economy, and the Energy Paradox," NBER Working Papers 18583, National Bureau of Economic Research, Inc.
  8. Huse, Cristian & Lucinda, Claudio, 2013. "The Market Impact and the Cost of Environmental Policy: Evidence from the Swedish Green Car Rebate," MPRA Paper 48905, University Library of Munich, Germany.
  9. Christopher R. Knittel, 2013. "The Political Economy of Gasoline Taxes: Lessons from the Oil Embargo," NBER Chapters, in: Tax Policy and the Economy, Volume 28 National Bureau of Economic Research, Inc.

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