Munich Personal RePEc Archive

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

Montag, Josef (2015): The Simple Economics of Motor Vehicle Pollution: A Case for Fuel Tax. Forthcoming in: Energy Policy

This is the latest version of this item.

[img]
Preview
PDF
MPRA_paper_64947.pdf

Download (239kB) | Preview

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.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.