NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cost-Effective Policies to Reduce Vehicle Emissions

Don Fullerton, Li Gan

NBER Working Paper No. 11174
Issued in March 2005
NBER Program(s):   PE   EEE

This paper uses an estimated demand system that accounts for heterogeneity to calculate and compare the lost consumer surplus from a higher tax on gasoline, a tax on distance, or a subsidy for buying a newer car. We introduce a view of cost-effectiveness that compares policies instead of technologies. Each tax might induce some consumers to drive less, some to switch from two vehicles to one, and some to buy a car instead of an SUV. Our model captures these behaviors. For each rate of tax, we simulate the changes in all such choices and how the new choices affect emissions. We also calculate the equivalent variation and subtract tax revenue to get deadweight loss. Finally, we take the added deadweight loss over the additional abatement as the social marginal cost of abatement, and we plot this curve for several different tax policies.

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Document Object Identifier (DOI): 10.3386/w11174

Published: Fullerton, Don and Li Gan. "Cost-Effective Policies To Reduce Vehicle Emissions," American Economic Review, 2005, v95(2,May), 300-304. citation courtesy of

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