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Should Electric Vehicle Drivers Pay a Mileage Tax?

Lucas W. Davis, James M. Sallee


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Environmental and Energy Policy and the Economy, Matthew Kotchen, James H. Stock, and Catherine Wolfram, editors
Conference held May 16, 2019
Forthcoming from University of Chicago Press
in NBER Book Series Environmental and Energy Policy and the Economy

In many countries the revenue from gasoline taxes is used to fund highways and other transportation infrastructure. As the number of electric vehicles on the road increases, this raises questions about the effectiveness and equity of this financing mechanism. In this paper, we ask whether electric vehicle drivers should pay a mileage tax. Though the gasoline tax has been traditionally viewed as a benefits tax, we take instead the perspective of economic efficiency. We derive a condition for the optimal electric vehicle mileage tax that highlights a key trade-off. On the one hand, there are externalities from driving including traffic congestion and accidents that imply a mileage tax is efficient. On the other hand, gasoline tends to be underpriced, so a low (or even negative) mileage tax might have efficiency benefits in encouraging substitution away from gasoline-powered vehicles. We then turn to an empirical analysis aimed at better understanding the current policy landscape for electric vehicles in the United States. Using newly available nationally-representative microdata we calculate that electric vehicles have reduced gasoline tax revenues by $250 million annually. We show that the foregone tax revenue is highly concentrated in a handful of states and is highly regressive, as most electric vehicles are driven by high-income households, and we discuss how this motivates and informs optimal policy.

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This chapter first appeared as NBER working paper w26072, Should Electric Vehicle Drivers Pay a Mileage Tax?, Lucas W. Davis, James M. Sallee
 
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