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Cost-Effective Policies to Reduce Vehicle Emissions

  • Don Fullerton
  • Li Gan

This paper uses an estimated demand system that accounts for heterogeneity to calculate and compare the lost consumer surplus from a higher tax on gasoline, a tax on distance, or a subsidy for buying a newer car. We introduce a view of cost-effectiveness that compares policies instead of technologies. Each tax might induce some consumers to drive less, some to switch from two vehicles to one, and some to buy a car instead of an SUV. Our model captures these behaviors. For each rate of tax, we simulate the changes in all such choices and how the new choices affect emissions. We also calculate the equivalent variation and subtract tax revenue to get deadweight loss. Finally, we take the added deadweight loss over the additional abatement as the social marginal cost of abatement, and we plot this curve for several different tax policies.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 2 (May)
Pages: 300-304

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:2:p:300-304
Note: DOI: 10.1257/000282805774669583
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  1. Fred Mannering & Clifford Winston, 1985. "A Dynamic Empirical Analysis of Household Vehicle Ownership and Utilization," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 215-236, Summer.
  2. 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, vol. 10(1), pages 1-33, February.
  3. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
  4. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
  5. Ye Feng & Don Fullerton & Li Gan, 2013. "Vehicle choices, miles driven, and pollution policies," Journal of Regulatory Economics, Springer, vol. 44(1), pages 4-29, August.
  6. Hanemann, W Michael, 1984. "Discrete-Continuous Models of Consumer Demand," Econometrica, Econometric Society, vol. 52(3), pages 541-61, May.
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