econ 135 fall08 lecture7b

Econ 135 fall08 - Urban Economics Lecture 7b More on Urban Transportation How do we actually pay for highways Freeways are mainly paid for by the

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1 Urban Economics Lecture 7b More on Urban Transportation How do we actually pay for highways? Freeways are mainly paid for by the Federal government, using the Federal excess tax on gasoline of $.184/gal. Calif also imposes an excise tax of $.18/gal. that is used to pay for state highways. These taxes are earmarked for highways or mass transit. Calif also imposes sales tax on gas, but this is not earmarked for roads. Total CA tax on gas = $.32/gal. Use of the Federal and state gasoline taxes to pay for roads means that urban residents subsidize rural residents, since there are more miles of roads per vehicle in rural than urban areas. Local roads are financed by fees levied on developers and by a local increase in the sales tax of ¼%. Note that the purchasing power of the excise taxes has declined over time, because of inflation and improvements in gas mileage.
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2 Trucks versus cars: Cars and trucks share the highways and both pay taxes to support them. o All of the wear and tear on roads is caused by trucks and weather, not cars. But cars pay most of the gasoline taxes. So cars subsidize trucks. o But cars cause congestion and pressure to wide urban freeways.
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3 Air Pollution/Fuel Efficiency Automobiles emit carbon dioxide—the greenhouse gas, and also emit many other pollutants. Diesel vehicles emit less CO2, but more particulates (small particles). There are various programs to reduce automotive pollution/improve fuel efficiency: 1. cars must have catalytic converters 2. vehicle inspection programs (CA has smog tests, other states have vehicle inspections). Probably not very effective. 3. gasoline taxes reduce pollution by reducing consumption of gas 4. could have effluent taxes on cars. 5. CAFÉ standards on cars and light trucks. These require that each vehicle manufacturer’s cars have an average fuel efficiency of at least 27.5 mpg and each vehicle manufacturer’s light trucks have an average fuel efficiency of 20.5 mpg.
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4 What are the effects of the CAFÉ standards? The big three automakers are just at the constraint, so in order to sell more big cars with bad fuel efficiency, they need to sell more small cars with good fuel efficiency. This pushes down the price of the big three’s small cars and raises the price of their large cars. Because people want big vehicles, CAFÉ standards make used vehicles more valuable, because there are more big used vehicles than big new vehicles. This hurts poor people who buy used vehicles. The Japanese car manufacturers produce more efficient vehicles generally, so their average fuel efficiency is below the constraint. So their prices are unaffected. This means that CAFÉ standards makes Cadillacs relatively expensive compared to Lexises. Also small cars of the Big 3 are cheap relative to small Hondas and Toyotas. Raising the CAFÉ standards won’t have a big effect on overall fuel efficiency of US
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This note was uploaded on 06/30/2009 for the course ECON 135 taught by Professor Staff during the Spring '08 term at UCSD.

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Econ 135 fall08 - Urban Economics Lecture 7b More on Urban Transportation How do we actually pay for highways Freeways are mainly paid for by the

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