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The Taxation of Fuel Economy

In: Tax Policy and the Economy, Volume 25

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  • James M. Sallee

Abstract

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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Suggested Citation

  • James M. Sallee, 2010. "The Taxation of Fuel Economy," NBER Chapters, in: Tax Policy and the Economy, Volume 25, pages 1-37, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:12220
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    Cited by:

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    3. Harju, Jarkko & Kosonen, Tuomas & Slemrod, Joel, 2020. "Missing miles: Evasion responses to car taxes," Journal of Public Economics, Elsevier, vol. 181(C).
    4. Ian Irvine, 2017. "The Marginal Social Value of Electric Vehicle Subsidies - Preliminary Evidence," Economics Bulletin, AccessEcon, vol. 37(1), pages 137-148.
    5. James M. Sallee, 2011. "The Taxation of Fuel Economy," Tax Policy and the Economy, University of Chicago Press, vol. 25(1), pages 1-38.
    6. Carley, Sanya & Zirogiannis, Nikolaos & Siddiki, Saba & Duncan, Denvil & Graham, John D., 2019. "Overcoming the shortcomings of U.S. plug-in electric vehicle policies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 113(C), pages 1-1.
    7. Tsvetanov, Tsvetan & Segerson, Kathleen, 2013. "Re-evaluating the role of energy efficiency standards: A behavioral economics approach," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 347-363.
    8. Arik Levinson, 2019. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 7-36.
    9. Petr David, 2019. "Can the Czech Road Tax be considered a Tax on Externalities?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2019(1), pages 47-63.
    10. Hunt Allcott & Nathan Wozny, 2014. "Gasoline Prices, Fuel Economy, and the Energy Paradox," The Review of Economics and Statistics, MIT Press, vol. 96(5), pages 779-795, December.
    11. Adamou, Adamos & Clerides, Sofronis & Zachariadis, Theodoros, 2011. "Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany," Climate Change and Sustainable Development 120047, Fondazione Eni Enrico Mattei (FEEM).
    12. Sallee, James M. & Slemrod, Joel, 2012. "Car notches: Strategic automaker responses to fuel economy policy," Journal of Public Economics, Elsevier, vol. 96(11), pages 981-999.
    13. Allcott, Hunt & Mullainathan, Sendhil & Taubinsky, Dmitry, 2014. "Energy policy with externalities and internalities," Journal of Public Economics, Elsevier, vol. 112(C), pages 72-88.
    14. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 3-28, Winter.
    15. Small, Kenneth A., 2012. "Energy policies for passenger motor vehicles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(6), pages 874-889.
    16. Sallee, James M. & West, Sarah E. & Fan, Wei, 2016. "Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations," Journal of Public Economics, Elsevier, vol. 135(C), pages 61-73.
    17. Perrels, Adriaan & Tuovinen, Tarja, 2012. "The Effectiveness of Differentiation of the Finnish Car Purchase Tax according to Carbon Dioxide Emission Performance," Research Reports 168, VATT Institute for Economic Research.
    18. Lu, Tingmingke, 2023. "On the income elasticity and regressivity of emission taxation," Economics Letters, Elsevier, vol. 223(C).
    19. Huse, Cristian, 2014. "Fast and Furious (and Dirty): How Asymmetric Regulation May Hinder Environmental Policy," MPRA Paper 48909, University Library of Munich, Germany.
    20. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
    21. Christopher R. Knittel, 2014. "The Political Economy of Gasoline Taxes: Lessons from the Oil Embargo," Tax Policy and the Economy, University of Chicago Press, vol. 28(1), pages 97-131.
    22. Petr David, 2020. "Rates of CO2 registration taxes levied on passenger cars in the EU - can they cause distortion?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2020(1), pages 07-32.
    23. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener: A Review of the Literature," NBER Working Papers 22242, National Bureau of Economic Research, Inc.
    24. Santos, Georgina, 2017. "Road fuel taxes in Europe: Do they internalize road transport externalities?," Transport Policy, Elsevier, vol. 53(C), pages 120-134.

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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