Distributional Impacts of an Environmental Tax Shift: The Case of Motor Vehicle Emissions Taxes

Margaret Walls and Jean Hanson

RFF Working Paper Series from Resources for the Future

Abstract: One of the most common criticisms of pollution taxes is that they are often believed to be inequitable — i.e., low income households are thought to be disproportionately harmed. In this paper, we assess the distributional impacts of three taxes aimed at reducing emissions from motor vehicles: (i) a tax on total annual emissions, (ii) a tax on emissions rates (in grams per mile), and (iii) a tax on annual miles traveled. We use two alternative measures of economic well-being, annual household income and a constructed measure of lifetime income. We find that all three fees look regressive, both on the basis of annual and lifetime income — though much less so on a lifetime income basis. However, if one of these fees is used to substitute for existing vehicle registration fees, the differential impacts over existing fees are quite small: on a lifetime income basis, the mileage-based fee looks almost identical to the current system, while the total emissions fee is a little more regressive and the emissions rate-based fee slightly more regressive still than the current system. These results highlight the importance of tax shifting to help the environment.

Date: 1996-01-01
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Distributional Impacts of an Environmental Tax Shift: The Case of Motor Vehicle Emissions Taxes (1996)
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