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A Presumptive Pigovian Tax: Complementing Regulation to Mimic an Emissions Fee

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  • Eskeland, Gunnar S

Abstract

If regulations are used to make cars and fuels cleaner, should gasoline taxes be used to manage demand for trips that pollute? Analysis of a well-composed program for Mexico City indicates that the emission reductions would cost 24 percent more if a tax on gasoline was not introduced. A simple analytical framework is developed to analyze the use of abatement requirements to make cars cleaner, and a gasoline tax to economize on the use of cars. The two instruments should be combined to mimic the incentives that would have been provided by an emissions fee. Thus, cleaner cars and fewer trips are analogous to competing suppliers of emission reductions; the planner should buy from both so that marginal costs are equal. Applying that rule, the marginal cost of emission reductions is, simply, the gasoline tax rate divided by emissions per liter. Copyright 1994 by Oxford University Press.

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  • Eskeland, Gunnar S, 1994. "A Presumptive Pigovian Tax: Complementing Regulation to Mimic an Emissions Fee," World Bank Economic Review, World Bank Group, vol. 8(3), pages 373-394, September.
  • Handle: RePEc:oup:wbecrv:v:8:y:1994:i:3:p:373-94
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    Cited by:

    1. Eskeland, Gunnar S. & Mideksa, Torben K., 2008. "Transportation fuel use, technology and standards: The role of credibility and expectations," Policy Research Working Paper Series 4695, The World Bank.
    2. Vidar Christiansen & Stephen Smith, 2012. "Externality-Correcting Taxes and Regulation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 358-383, June.
    3. Fullerton, Don & Wolverton, Ann, 2005. "The two-part instrument in a second-best world," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1961-1975, September.
    4. Fullerton, Don & West, Sarah E., 2002. "Can Taxes on Cars and on Gasoline Mimic an Unavailable Tax on Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 135-157, January.
    5. David Meintrup & Chang Woon Nam, 2009. "Shadow market area for air pollutants," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 36(4), pages 664-681, July.
    6. Eskeland, Gunnar S & Feyzioglu, Tarhan, 1997. "Rationing Can Backfire: The "Day without a Car" in Mexico City," World Bank Economic Review, World Bank Group, vol. 11(3), pages 383-408, September.
    7. De Borger, Bruno & Wouters, Sandra, 1998. "Transport externalities and optimal pricing and supply decisions in urban transportation: a simulation analysis for Belgium," Regional Science and Urban Economics, Elsevier, vol. 28(2), pages 163-197, March.
    8. Gunnar S. Eskeland & Jian Xie, 1998. "Acting Globally while Thinking Locally: Is the Global Environment Protected by Transport Emission Control Programs?," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 385-411, November.
    9. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, pages 1-23.
    10. Akie Takeuchi & Maureen Cropper & Antonio Bento, 2007. "The Impact Of Policies To Control Motor Vehicle Emissions In Mumbai, India," Journal of Regional Science, Wiley Blackwell, vol. 47(1), pages 27-46.
    11. David O'Connor, 1995. "Applying Economic Instruments in Developing Countries: From Theory to Implementation," EEPSEA Special and Technical Paper sp199501t3, Economy and Environment Program for Southeast Asia (EEPSEA), revised Jan 1995.
    12. Lehmann, Paul, 2008. "Using a Policy Mix for Pollution Control – A Review of Economic Literature," MPRA Paper 21354, University Library of Munich, Germany.
    13. Parry, Ian W.H., 2012. "Reforming the tax system to promote environmental objectives: An application to Mauritius," Ecological Economics, Elsevier, vol. 77(C), pages 103-112.
    14. 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.
    15. Timilsina, Govinda R. & Dulal, Hari B., 2009. "A review of regulatory instruments to control environmental externalities from the transport sector," Policy Research Working Paper Series 4867, The World Bank.
    16. 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.
    17. Eskeland, Gunnar S., 2000. "Externalities and production efficiency," Policy Research Working Paper Series 2319, The World Bank.
    18. Parry, Ian W.H. & Timilsina, Govinda R., 2010. "How should passenger travel in Mexico City be priced?," Journal of Urban Economics, Elsevier, vol. 68(2), pages 167-182, September.
    19. HAYNES Goddard, 1997. "Using Tradeable Permits to Achieve Sustainability in the World's Large Cities: Policy Design Issues and Efficiency Conditions for Controlling Vehicle Emissions, Congestion and Urban Decentralization w," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(1), pages 63-99, July.
    20. Eskeland, Gunnar S., 2000. "Environmental protection and optimal taxation," Policy Research Working Paper Series 2510, The World Bank.
    21. Mazumder, Diya B., 2014. "Biofuel subsidies versus the gas tax: The carrot or the stick?," Energy Economics, Elsevier, vol. 44(C), pages 361-374.
    22. Claudio Ferraz & Ronaldo Seroa da Motta, 2015. "Automobile Pollution Control in Brazil," Discussion Papers 0086, Instituto de Pesquisa Econômica Aplicada - IPEA.
    23. Parry, Ian W.H. & Timilsina, Govinda R., 2009. "Pricing externalities from passenger transportation in Mexico city," Policy Research Working Paper Series 5071, The World Bank.

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