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Correcting Heterogeneous Externalities: Evidence from Local Fuel Taxes

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  • Cody Nehiba

Abstract

The demand for automobile transportation and the external costs of driving vary widely across locations. However, gasoline taxes, the most common policy tools implemented to correct these externalities, are levied uniformly at the federal and state levels. I examine how a gasoline tax that reflects the heterogeneity in demand and damages can improve efficiency. I estimate county-level travel demand elasticities and congestion damages to compare the efficiency of state gasoline taxes to county-specific fuel taxes. Because elasticities, congestion damages, and pollution damages exhibit heterogeneity across regions, county-specific fuel taxes, largely levied in major metropolitan areas, provide consumer welfare gains between $5 and $30 per capita annually in addition to equity gains relative to revenue-neutral state fuel taxes.

Suggested Citation

  • Cody Nehiba, 2022. "Correcting Heterogeneous Externalities: Evidence from Local Fuel Taxes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(3), pages 495-529.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/717418
    DOI: 10.1086/717418
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    Cited by:

    1. Kilian, Lutz & Zhou, Xiaoqing, 2024. "Heterogeneity in the pass-through from oil to gasoline prices: A new instrument for estimating the price elasticity of gasoline demand," Journal of Public Economics, Elsevier, vol. 232(C).
    2. Sileci, Lorenzo, 2023. "Carbon pricing with regressive co-benefits: evidence from British Columbia’s carbon tax," LSE Research Online Documents on Economics 121047, London School of Economics and Political Science, LSE Library.

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