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Unformatted text preview: 667 American Economic Review 2009, 99:3, 667–699 http://www.aeaweb.org/articles.php?doi = 10.1257/aer.99.3.667 For several reasons, reducing automobile-based gasoline consumption is a major US public policy issue. Gasoline use generates environmental externalities. In 2004, approximately 22 per- cent of US emissions of carbon dioxide—the principal anthropogenically sourced “greenhouse gas” contributing to global climate change—derived from gasoline use. Other environmental externalities from gasoline combustion include the impacts from emissions of several “local” air pollutants such as carbon monoxide, nitrogen oxides, and volatile organic compounds. Reduced gasoline use could lead to improved air quality and associated benefits to health. 1, 2 In addition, gasoline consumption accounts for 44 percent of the US demand for crude oil, and the nation’s dependence on crude oil makes the United States vulnerable to changes in world oil prices ema- nating from disruptions in the world oil market. Some analyses claim that this vulnerability is not accounted for in individual consumption decisions and thus represents another externality from 1 Ian W. H. Parry and Kenneth A. Small ( 2005 ) and the National Research Council ( 2002 ) examine the various externalities from gasoline use and offer estimates of the overall marginal damages. The former study estimates the overall external cost from US gasoline consumption ( including effects relating to local pollution, climate change, con- gestion, and accidents ) to be about 75 cents per gallon in year-2000 dollars. This suggests that US taxes on gasoline are below the efficiency-maximizing level, since the federal tax plus average state tax totals 41 cents. 2 The extent of the health improvement from improved air quality depends on both the reduction in gasoline use and possible changes in pollution per gallon of gasoline used. Air districts currently in compliance with air pollution regulations under the 1990 Clean Air Act amendments might well respond to reductions in gasoline use by relaxing “tailpipe” emissions requirements, that is, on the allowable emissions per unit of fuel combusted. This would offset the air-quality and health improvements from reduced gasoline consumption. Distributional and Efficiency Impacts of Increased US Gasoline Taxes By Antonio M. Bento, Lawrence H. Goulder, Mark R. Jacobsen, and Roger H. von Haefen* We examine the impacts of increased US gasoline taxes in a model that links the markets for new, used, and scrapped vehicles and recognizes the consider- able heterogeneity among households and cars. Household choice parameters derive from an estimation procedure that integrates individual choices for car ownership and miles traveled. We find that each cent-per-gallon increase in the price of gasoline reduces the equilibrium gasoline consumption by about 0.2 percent. Taking account of revenue recycling, the impact of a 25-cent gasoline tax increase on the average household is about $30 per year...
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