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The Taxation of Fuel Economy

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  • James 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.

Suggested Citation

  • James Sallee, 2010. "The Taxation of Fuel Economy," NBER Working Papers 16466, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16466
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    References listed on IDEAS

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    Cited by:

    1. Cristian Huse & Claudio Lucinda, 2014. "The Market Impact and the Cost of Environmental Policy: Evidence from the Swedish Green Car Rebate," Economic Journal, Royal Economic Society, vol. 124(578), pages 393-419, August.
    2. Huse, Cristian, 2014. "Fast and Furious (and Dirty): How Asymmetric Regulation May Hinder Environmental Policy," MPRA Paper 48909, University Library of Munich, Germany.
    3. 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.
    4. Arik Levinson, 2017. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," Working Papers gueconwpa~17-17-01, Georgetown University, Department of Economics.
    5. Allcott, Hunt & Mullainathan, Sendhil & Taubinsky, Dmitry, 2014. "Energy policy with externalities and internalities," Journal of Public Economics, Elsevier, vol. 112(C), pages 72-88.
    6. Adamos Adamou & Sofronis Clerides & Theodoros Zachariadis, 2011. "Designing Carbon Taxation Schemes for Automobiles: A Simulation Exercise for Germany," Working Papers 2011.96, Fondazione Eni Enrico Mattei.
    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. 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.
    9. Hunt Allcott & Nathan Wozny, 2012. "Gasoline Prices, Fuel Economy, and the Energy Paradox," NBER Working Papers 18583, National Bureau of Economic Research, Inc.
    10. Arik Levinson, 2016. "Energy Efficiency Standards Are More Regressive Than Energy Taxes: Theory and Evidence," NBER Working Papers 22956, National Bureau of Economic Research, Inc.
    11. Santos, Georgina, 2017. "Road fuel taxes in Europe: Do they internalize road transport externalities?," Transport Policy, Elsevier, vol. 53(C), pages 120-134.
    12. Small, Kenneth A., 2012. "Energy policies for passenger motor vehicles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(6), pages 874-889.
    13. 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.
    14. 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.
    15. 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.

    More about this item

    JEL classification:

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

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