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Should Electric Vehicle Drivers Pay a Mileage Tax?

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  • Lucas W. Davis
  • James M. Sallee

Abstract

In many countries, the revenue from gasoline taxes is used to fund highways and other transportation infrastructure. As the number of electric vehicles on the road increases, this raises questions about the effectiveness and equity of this financing mechanism. In this paper, we ask whether electric vehicle drivers should pay a mileage tax. Though the gasoline tax has been traditionally viewed as a benefits tax, we instead take the perspective of economic efficiency. We derive a condition for the optimal electric vehicle mileage tax that highlights a key trade-off. On the one hand, there are externalities from driving, including traffic congestion and accidents, that imply a mileage tax is efficient. On the other hand, gasoline tends to be underpriced, so a low (or even negative) mileage tax might have efficiency benefits in encouraging substitution away from gasoline-powered vehicles. We then turn to an empirical analysis aimed at better understanding the current policy landscape for electric vehicles in the United States. Using newly available, nationally representative microdata, we calculate that electric vehicles have reduced gasoline tax revenues by $250 million annually. We show that the forgone tax revenue is highly concentrated in a handful of states and is highly regressive, as most electric vehicles are driven by high-income households, and we discuss how this motivates and informs optimal policy.

Suggested Citation

  • Lucas W. Davis & James M. Sallee, 2020. "Should Electric Vehicle Drivers Pay a Mileage Tax?," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 1(1), pages 65-94.
  • Handle: RePEc:ucp:epolec:doi:10.1086/706793
    DOI: 10.1086/706793
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    Cited by:

    1. Börjesson, Maria & Asplund, Disa & Hamilton, Carl, 2021. "Optimal kilometre tax for electric passenger cars," Working Papers 2021:3, Swedish National Road & Transport Research Institute (VTI).
    2. Hayashida, Sherilyn & La Croix, Sumner & Coffman, Makena, 2021. "Understanding changes in electric vehicle policies in the U.S. states, 2010–2018," Transport Policy, Elsevier, vol. 103(C), pages 211-223.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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