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The Taxation of Fuel Economy

  • James M. Sallee

Policy makers have instituted a variety of fuel economy tax policies—polices that tax or subsidize new vehicle purchases on the basis of fuel economy performance—in the hopes of improving fleet fuel economy and reducing gasoline consumption. This article reviews existing policies and concludes that while they do work to improve vehicle fuel economy, the same goals could be achieved at a lower cost to society if policy makers instead directly taxed fuel. Fuel economy taxation, as it is currently practiced, invites several forms of gaming that could be eliminated by policy changes. Thus, even if policy makers prefer fuel economy taxation over fuel taxes for reasons other than efficiency, there are still potential efficiency gains from reform.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/658379
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File URL: http://www.jstor.org/stable/full/10.1086/658379
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Tax Policy and the Economy.

Volume (Year): 25 (2011)
Issue (Month): 1 ()
Pages: 1 - 38

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Handle: RePEc:ucp:tpolec:doi:10.1086/658379
Contact details of provider: Web page: http://www.journals.uchicago.edu/TPE/

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  1. Soren T. Anderson & James M. Sallee, 2011. "Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," American Economic Review, American Economic Association, vol. 101(4), pages 1375-1409, June.
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  8. Chandra, Ambarish & Gulati, Sumeet & Kandlikar, Milind, 2010. "Green drivers or free riders? An analysis of tax rebates for hybrid vehicles," Journal of Environmental Economics and Management, Elsevier, vol. 60(2), pages 78-93, September.
  9. Lawrence H. Goulder & Mark R. Jacobsen & Arthur A. van Benthem, 2009. "Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits," NBER Working Papers 15337, National Bureau of Economic Research, Inc.
  10. Ian W. H. Parry & Margaret Walls & Winston Harrington, 2007. "Automobile Externalities and Policies," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 373-399, June.
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  13. Meghan R. Busse & Christopher R. Knittel & Florian Zettelmeyer, 2009. "Pain at the Pump: The Differential Effect of Gasoline Prices on New and Used Automobile Markets," NBER Working Papers 15590, National Bureau of Economic Research, Inc.
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