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

Don Fullerton () and Sarah E. West ()

No 7059, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D62 H23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env, nep-mic, nep-pbe and nep-pub
Date: 1999-03
Note: PE EEE
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Journal Article: Can Taxes on Cars and on Gasoline Mimic an Unavailable Tax on Emissions? (2002)
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