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Can Taxes on Cars and on Gasoline Mimic an Unavailable Tax on Emissions?

  • Don Fullerton
  • Sarah West

A tax on vehicle emissions can efficiently induce all of the cheapest forms of abatement. Consumers could drive less, buy a smaller car with better gas mileage, use cleaner gasoline, and repair pollution control equipment (PCE). However, the technology is not yet available to measure and tax each car's total emissions. We thus investigate alternative instruments. In a simple model with identical consumers, we show conditions under which the same efficiency can be attained by the combination of a tax on gas, a tax on engine size , and a subsidy to PCE. In a model with heterogeneous consumers, the same efficiency can again be obtained, but only if each person's gasoline tax rate can be made to depend on the characteristics of the car. We solve for these first-best tax rates. Assuming that tax rates must be uniform across consumers, we then characterize second-best tax rates on gasoline and on characteristics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7059.

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Date of creation: Mar 1999
Date of revision:
Publication status: published as Fullerton, Don and Sarah E. West. "Can Taxes On Cars And On Gasoline Mimic An Unavailable Tax On Emissions?," Journal of Environmental Economics and Management, 2002, v43(1,Jan), 135-157.
Handle: RePEc:nbr:nberwo:7059
Note: PE EEE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Wijkander, Hans, 1985. "Correcting externalities through taxes on/subsidies to related goods," Journal of Public Economics, Elsevier, vol. 28(1), pages 111-125, October.
  2. Eskeland, Gunnar S, 1994. "A Presumptive Pigovian Tax: Complementing Regulation to Mimic an Emissions Fee," World Bank Economic Review, World Bank Group, vol. 8(3), pages 373-94, September.
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  5. Fullerton, Don, 1997. "Environmental Levies and Distortionary Taxes: Comment," American Economic Review, American Economic Association, vol. 87(1), pages 245-51, March.
  6. Alberini, Anna & Harrington, Winston & McConnell, Virginia, 1996. "Estimating an Emissions Supply Function from Accelerated Vehicle Retirement Programs," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 251-65, May.
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  9. 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.
  10. Robert Kohn, 1996. "An additive tax and subsidy for controlling automobile pollution," Applied Economics Letters, Taylor & Francis Journals, vol. 3(7), pages 459-462.
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  19. Alan J. Krupnick & Margaret A. Walls, 1992. "The cost-effectiveness of methanol for reducing motor vehicle emissions and urban ozone," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 11(3), pages 373-396.
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