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Can Taxes on Cars and on Gasoline Mimic an Unavailable Tax on Emissions?

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Author Info
Don Fullerton
Sarah West

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7059.

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Date of creation: Mar 1999
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Handle: RePEc:nbr:nberwo:7059

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Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kohn, Robert E, 1996. "An Additive Tax and Subsidy for Controlling Automobile Pollution," Applied Economics Letters, Taylor and Francis Journals, vol. 3(7), pages 459-62, July. [Downloadable!] (restricted)
  2. Eskeland, Gunnar S, 1994. "A Presumptive Pigovian Tax: Complementing Regulation to Mimic an Emissions Fee," World Bank Economic Review, Oxford University Press, vol. 8(3), pages 373-94, September.
  3. Anna Alberini & Winston Harrington & Virginia McConnell, 1995. "Determinants of Participation in Accelerated Vehicle-Retirement Programs," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 93-112, Spring. [Downloadable!] (restricted)
  4. Small, K.A. & Kazimi, C., 1994. "On the Costs of Air Pollution from Motor Vehicules," Papers 94-95-3, California Irvine - School of Social Sciences.
  5. Fullerton, Don, 1997. "Environmental Levies and Distortionary Taxes: Comment," American Economic Review, American Economic Association, vol. 87(1), pages 245-51, March. [Downloadable!] (restricted)
  6. Alberini, Anna & Harrington, Winston & McConnell, Virginia, 1996. "Estimating an Emissions Supply Function from Accelerated Vehicle Retirement Programs," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 251-65, May. [Downloadable!] (restricted)
  7. Matthew E. Kahn, 1996. "New Evidence on Trends in Vehicle Emissions," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 183-196, Spring. [Downloadable!] (restricted)
  8. Bohm, Peter & Russell, Clifford S., 1985. "Comparative analysis of alternative policy instruments," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 1, chapter 10, pages 395-460 Elsevier. [Downloadable!] (restricted)
  9. Innes, Robert, 1996. "Regulating Automobile Pollution under Certainty, Competition, and Imperfect Information," Journal of Environmental Economics and Management, Elsevier, vol. 31(2), pages 219-239, September. [Downloadable!] (restricted)
  10. Don Fullerton & Sarah West, 2000. "Tax and Subsidy Combinations for the Control of Car Pollution," NBER Working Papers 7774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Kahn, Matthew E., 1996. "New estimates of the benefits of vehicle emissions regulation," Economics Letters, Elsevier, vol. 51(3), pages 363-369, June. [Downloadable!] (restricted)
  12. Goldberg, Pinelopi Koujianou, 1998. "The Effects of the Corporate Average Fuel Efficiency Standards in the US," Journal of Industrial Economics, Blackwell Publishing, vol. 46(1), pages 1-33, March. [Downloadable!] (restricted)
  13. Don Fullerton & Ann Wolverton, 1997. "The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy," NBER Working Papers 5993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Harrington, Winston, 1997. "Fuel Economy and Motor Vehicle Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 240-252, July. [Downloadable!] (restricted)
  15. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127 Elsevier. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fredric C. Menz, 2002. "Mobile source pollution control in the United States and China," Public Economics 0209004, EconWPA. [Downloadable!]
  2. Takeuchi, Akie & Cropper, Maureen & Bento, Antonio, 2006. "The impact of policies to control motor vehicle emissions in Mumbai, India," Policy Research Working Paper Series 4059, The World Bank. [Downloadable!]
    Other versions:
  3. Parry, Ian & Small, Kenneth, 2002. "Does Britain or the United States Have the Right Gasoline Tax?," Discussion Papers dp-02-12-, Resources For the Future. [Downloadable!]
    Other versions:
  4. Montero, J-P., 2004. "Pollution Markets with Imperfectly Observed Emissions," Cambridge Working Papers in Economics 0456, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  5. Raúl O'Ryan & Sebastian Miller & Carlos J. de Miguel, 2001. "Environmental Taxes, Inefficient Subsidies and Income Distribution in Chile: A CGE framework," Documentos de Trabajo 98, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  6. Ye Feng & Don Fullerton & Li Gan, 2005. "Vehicle Choices, Miles Driven, and Pollution Policies," NBER Working Papers 11553, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Montero, J-P., 2004. "Tradable Permits with Incomplete Monitoring: Evidence from Santiago’s Particulate Permits Program," Cambridge Working Papers in Economics 0457, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  8. Lucas W. Davis & Lutz Kilian, 2009. "Estimating the Effect of a Gasoline Tax on Carbon Emissions," NBER Working Papers 14685, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Alpizar, Francisco & Carlsson, Fredrik, 2001. "Policy Implications and Analysis of the Determinants of Travel Mode Choice: An Application of Choice Experiments to Metropolitan Costa Rica," Working Papers in Economics 56, Göteborg University, Department of Economics. [Downloadable!]
    Other versions:
  10. Don Fullerton & Sarah West, 2000. "Tax and Subsidy Combinations for the Control of Car Pollution," NBER Working Papers 7774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Garrone Giovanna, 2004. "Scrapping old cars for reducing air pollution: an environmental evaluation of the italian 1997-1998 incentive policy," Department of Economics Working Papers 200404, University of Turin. [Downloadable!]
  12. Ando, Amy & Harrington, Winston & McConnell, Virginia D., 2007. "Fees in an Imperfect World: An Application to Motor Vehicle Emissions," Discussion Papers dp-07-34, Resources For the Future. [Downloadable!]
  13. Don Fullerton & Andrew Leicester & Stephen Smith, 2008. "Environmental Taxes," NBER Working Papers 14197, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Suzi Kerr & Kit Rutherford, 2008. "Nutrient Trading in Lake Rotorua: Determining Net Nutrient Inputs," Working Papers 08_03, Motu Economic and Public Policy Research. [Downloadable!]
  15. Teresa Palmer Tous & Antoni Riera Font, 2005. "Road transport taxation: a critical review of their internalising effectiveness," Hacienda Pública Española, IEF, vol. 173(2), pages 165-191, June. [Downloadable!]
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