Automobile fuel efficiency policies with international innovation spillovers

Philippe Barla and Stef Proost

Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: In this paper, we explore automobile fuel efficiency policies in the presence of two externalities i) a global environmental problem and ii) international innovation spillovers. Using a simple model with two regions, we show that both a fuel tax and a tax on vehicles based on their fuel economy rating are needed to decentralize the first best. We also show that if policies are not coordinated between regions, the resulting gas taxes will be set too low and each region will use the tax on fuel rating, to reduce the damage caused by foreign drivers. If standards are used instead of taxes, we find that spillovers may alleviate free-riding. Under some conditions, a strict standard in one region may favour the adoption of a strict standard in the other one.

Keywords: Environmental policy; automobile; fuel efficiency standard; gasoline tax; innovation spillovers (search for similar items in EconPapers)
JEL-codes: O38 Q48 Q54 Q58 R48 (search for similar items in EconPapers)
Date: 2008-05
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:ces0817

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