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Electric Vehicles, Potholes, and Taxes: Who Pays the Price?

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Abstract

Automobile manufacturers and even some states have ambitious goals to phase out gas-powered cars. Currently, a primary source of automobile infrastructure funding is gasoline taxes. But as electric vehicles replace gasoline-powered cars, less gasoline will be purchased and revenues from the gasoline tax will fall short of what is needed to maintain roads. Consumers who do not purchase electric vehicles—perhaps because they can't afford them—are left to bear the burden of the gasoline tax. This Policy Hub article illustrates the inherent regressivity of the gasoline tax and then simulates the distributional impact of replacing the current gas tax with a lump-sum tax with different assessment rules designed to replace revenue generated by the gasoline tax. For example, many states are considering switching from a gas tax to a tax based on miles driven to shore up infrastructure funding. Alternatively, the required revenue could be paid based on income. Not surprisingly, the degree of regressivity of replacing the gasoline tax depends on how the tax is assessed across the income distribution.

Suggested Citation

  • Kalee Burns & Julie L. Hotchkiss, 2023. "Electric Vehicles, Potholes, and Taxes: Who Pays the Price?," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2023(4), July.
  • Handle: RePEc:fip:a00068:96730
    DOI: 10.29338/ph2023-4
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    References listed on IDEAS

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    3. West, Sarah E. & Williams, R.C.Roberton III, 2004. "Estimates from a consumer demand system: implications for the incidence of environmental taxes," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 535-558, May.
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    More about this item

    Keywords

    gas tax; equity; incidence; consumer demand system; income distribution;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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