Automobile Fuel Efficiency Policies with International Innovation Spillovers

24 Pages Posted: 18 Sep 2008

See all articles by Philippe Barla

Philippe Barla

Université Laval - Département d'Économique

Stef Proost

KU Leuven - Department of Economics

Date Written: May 1, 2008

Abstract

In this paper, we explore automobile fuel efficiency policies in the presence of two externalities i) a global environmental problem; and ii) international innovation spillovers. Using a simple model with two regions, we show that both a fuel tax and a tax on vehicles based on their fuel economy rating are needed to decentralize the first best. We also show that if policies are not coordinated between regions, the resulting gas taxes will be set too low and each region will use the tax on fuel rating, to reduce the damage caused by foreign drivers. If standards are used instead of taxes, we find that spillovers may alleviate free-riding. Under some conditions, a strict standard in one region may favour the adoption of a strict standard in the other one.

Keywords: Environmental policy, automobile, fuel efficiency standard, gasoline tax, innovation spillovers

JEL Classification: O38, Q48, Q54, Q58, R48

Suggested Citation

Barla, Philippe and Proost, Stef V., Automobile Fuel Efficiency Policies with International Innovation Spillovers (May 1, 2008). Available at SSRN: https://ssrn.com/abstract=1268156 or http://dx.doi.org/10.2139/ssrn.1268156

Philippe Barla (Contact Author)

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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