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The Simple Economics of Motor Vehicle Pollution: A Case for Fuel Tax

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  • Montag, Josef

Abstract

The volume of pollution produced by an automobile is determined by driver's behavior along three margins: (i) vehicle selection, (ii) kilometers driven, and (iii) on-road fuel economy. The first two margins have been studied extensively, however the third has received scant attention. How significant is this 'intensive margin'? What would be the optimal policies when it is taken into account? The paper develops and analyzes a simple model of the technical and behavioral mechanisms that determine the volume emissions produced by a car. The results show that an optimal fuel tax would provide drivers with appropriate incentives along all three margins and that only public information is needed for a fuel tax to be set optimally. In contrast, an optimal distance tax would require private information. Lastly, relative to the optimal fuel tax, a simple uniform fuel tax is shown to be progressive. Thus, being already deployed worldwide, a uniform fuel tax is an attractive second-best policy. These findings should be accounted for when designing new mechanisms to alleviate motor vehicle pollution.

Suggested Citation

  • Montag, Josef, 2015. "The Simple Economics of Motor Vehicle Pollution: A Case for Fuel Tax," MPRA Paper 64398, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:64398
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    Cited by:

    1. Galvin, Ray, 2016. "Rebound effects from speed and acceleration in electric and internal combustion engine cars: An empirical and conceptual investigation," Applied Energy, Elsevier, vol. 172(C), pages 207-216.
    2. Brand, Christian, 2016. "Beyond ‘Dieselgate’: Implications of unaccounted and future air pollutant emissions and energy use for cars in the United Kingdom," Energy Policy, Elsevier, vol. 97(C), pages 1-12.
    3. Caroline Orset, 2017. "How do travellers respond to health and environmental policies to reduce air pollution?," Working Papers 2017/02, INRA, Economie Publique.
    4. repec:eee:rensus:v:75:y:2017:i:c:p:534-547 is not listed on IDEAS
    5. repec:eee:trapol:v:60:y:2017:i:c:p:10-23 is not listed on IDEAS

    More about this item

    Keywords

    automobile externalities; car pollution; CO2 emissions; fuel economy; driving behavior; distance tax; fuel tax.;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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