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Cost-Effective Policies to Reduce Vehicle Emissions

  • Don Fullerton
  • Li Gan

This paper uses an estimated demand system that accounts for heterogeneity to calculate and compare the lost consumer surplus from a higher tax on gasoline, a tax on distance, or a subsidy for buying a newer car. We introduce a view of cost-effectiveness that compares policies instead of technologies. Each tax might induce some consumers to drive less, some to switch from two vehicles to one, and some to buy a car instead of an SUV. Our model captures these behaviors. For each rate of tax, we simulate the changes in all such choices and how the new choices affect emissions. We also calculate the equivalent variation and subtract tax revenue to get deadweight loss. Finally, we take the added deadweight loss over the additional abatement as the social marginal cost of abatement, and we plot this curve for several different tax policies.

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File URL: http://www.nber.org/papers/w11174.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11174.

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Date of creation: Mar 2005
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Publication status: published as Fullerton, Don and Li Gan. "Cost-Effective Policies To Reduce Vehicle Emissions," American Economic Review, 2005, v95(2,May), 300-304.
Handle: RePEc:nbr:nberwo:11174
Note: PE EEE
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  1. Ye Feng & Don Fullerton & Li Gan, 2005. "Vehicle Choices, Miles Driven, and Pollution Policies," NBER Working Papers 11553, National Bureau of Economic Research, Inc.
  2. Fred Mannering & Clifford Winston, 1985. "A Dynamic Empirical Analysis of Household Vehicle Ownership and Utilization," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 215-236, Summer.
  3. West, Sarah E., 2004. "Distributional effects of alternative vehicle pollution control policies," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 735-757, March.
  4. Hanemann, W Michael, 1984. "Discrete-Continuous Models of Consumer Demand," Econometrica, Econometric Society, vol. 52(3), pages 541-61, May.
  5. Don Fullerton & Sarah West, 2000. "Tax and Subsidy Combinations for the Control of Car Pollution," NBER Working Papers 7774, National Bureau of Economic Research, Inc.
  6. Dubin, Jeffrey A & McFadden, Daniel L, 1984. "An Econometric Analysis of Residential Electric Appliance Holdings and Consumption," Econometrica, Econometric Society, vol. 52(2), pages 345-62, March.
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