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The Relative Efficiency of Fuel Economy Standards Versus Taxes as Environmental Policy Instruments

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  • Steven G. Thorpe

    (University of Northern Iowa)

Abstract

This paper explores the comparative effects of automotive fuel economy standards and taxation on the levels of average fuel efficiency, air quality, and welfare. Theoretical and applied analyses reveal that fuel economy standards can substantially improve average fuel efficiency without having much impact on air quality and welfare, and in contrast, taxation improves air quality and increases welfare without significantly affecting average fuel efficiency. Thus, the results suggest that average fuel efficiency is too indirect a target for reducing automobile-related pollution so that compared to taxation fuel economy standards are a relatively costly means of environmental improvement.

Suggested Citation

  • Steven G. Thorpe, 2000. "The Relative Efficiency of Fuel Economy Standards Versus Taxes as Environmental Policy Instruments," Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, vol. 26(1), pages 15-39.
  • Handle: RePEc:mve:journl:v:26:y:2000:i:1:p:15-39
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    More about this item

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D6 - Microeconomics - - Welfare Economics

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