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How Should Heavy-Duty Trucks Be Taxed?

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  • Parry, Ian W.H.

    ()
    (Resources for the Future)

Abstract

This paper develops and implements an analytical framework for estimating optimal taxes on the fuel use and mileage of heavy-duty trucks, accounting for external costs from congestion, accidents, pavement damage, noise, energy security, and local and global pollution. The analysis allows for endogenous fuel economy, increased auto travel (and externalities) in response to reduced truck congestion, and it distinguishes driving by truck type and region. We estimate the optimal (second-best) diesel fuel tax is $1.12 per gallon, and implementing it increases welfare by $1.34 billion per annum. However, optimizing over both fuel and mileage taxes, and differentiating mileage taxes by vehicle type and region, yields progressively higher welfare gains. The most efficient tax structure involves a diesel fuel tax of 69 cents per gallon and charges on trucks that vary between 7 and 20 cents per mile; implementing this tax structure yields welfare gains of $2.06 billion.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-06-23.

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Date of creation: 27 Apr 2006
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Handle: RePEc:rff:dpaper:dp-06-23

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Keywords: truck tax; diesel tax; external costs; welfare gains;

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References

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  1. Bovenberg, A Lans & Goulder, Lawrence H, 1996. "Optimal Environmental Taxation in the Presence of Other Taxes: General-Equilibrium Analyses," American Economic Review, American Economic Association, vol. 86(4), pages 985-1000, September.
  2. Small, K. & Winston, C., 1998. ""The Demand for Transportation: Models and Applications"," Papers 98-99-6, California Irvine - School of Social Sciences.
  3. Richard S.J. Tol & Samuel Fankhauser & Richard G. Richels & Joel B. Smith, 2000. "How Much Damage Will Climate Change Do? Recent Estimates," Working Papers FNU-2, Research unit Sustainability and Global Change, Hamburg University, revised Sep 2000.
  4. Parry, Ian W H & Bento, Antonio, 2001. " Revenue Recycling and the Welfare Effects of Road Pricing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 645-71, December.
  5. Lawrence H. Goulder & Ian W. H. Parry & Roberton C. Williams III & Dallas Burtraw, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," NBER Working Papers 6464, National Bureau of Economic Research, Inc.
  6. Edward Calthrop & Bruno De Borger & Stef Proost, 2003. "Tax reform for dirty intermediate goods: theory and an application to the taxation of freight transport," Energy, Transport and Environment Working Papers Series ete0302, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  7. 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.
  8. Inge Mayeres & Denise Van Regemorter, 2003. "Modelling the health related benefits of environmental policies - a CGE analysis for the eu countries with gem-e3," Energy, Transport and Environment Working Papers Series ete0310, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  9. Dahl, Carol A., 1993. "A survey of energy demand elasticities in support of the development of the NEMS," MPRA Paper 13962, University Library of Munich, Germany.
  10. Calthrop E. & De Borger B. & Proost S., 2006. "Externalities and partial tax reform: Does it make sense to tax road freight (but not passenger) transport?," Working Papers 2006017, University of Antwerp, Faculty of Applied Economics.
  11. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
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Cited by:
  1. Andre De Palma & Moez Kilani & Robin Lindsey, 2006. "The Economics of Truck Toll Lanes," ERSA conference papers ersa06p896, European Regional Science Association.
  2. de Palma, André & Kilani, Moez & Lindsey, Robin, 2008. "The merits of separating cars and trucks," Journal of Urban Economics, Elsevier, vol. 64(2), pages 340-361, September.
  3. Clifford Winston, 2013. "On the Performance of the U.S. Transportation System: Caution Ahead," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 773-824, September.
  4. Parry, Ian & Strand, Jon, 2012. "International fuel tax assessment: an application to Chile," Environment and Development Economics, Cambridge University Press, vol. 17(02), pages 127-144, April.
  5. Guerrero, Sebastian E. & Madanat, Samer M. & Leachman, Robert C., 2013. "The Trucking Sector Optimization Model: A tool for predicting carrier and shipper responses to policies aiming to reduce GHG emissions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 85-107.
  6. Ian W.H. Parry & Jon Strand, 2011. "International Fuel Tax Assessment," IMF Working Papers 11/168, International Monetary Fund.

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