The Taxation of Fuel Economy

48 Pages Posted: 18 Oct 2010 Last revised: 30 Dec 2022

See all articles by James Sallee

James Sallee

University of Michigan at Ann Arbor

Date Written: October 2010


Policy-makers have instituted a variety of fuel economy tax policies -- polices that tax or subsidize new vehicle purchases on the basis of fuel economy performance -- in the hopes of improving fleet fuel economy and reducing gasoline consumption. This article reviews existing policies and concludes that while they do work to improve vehicle fuel economy, the same goals could be achieved at a lower cost to society if policy-makers instead directly taxed fuel. Fuel economy taxation, as it is currently practiced, invites several forms of gaming that could be eliminated by policy changes. Thus, even if policy-makers prefer fuel economy taxation over fuel taxes for reasons other than efficiency, there are still potential efficiency gains from reform.

Suggested Citation

Sallee, James, The Taxation of Fuel Economy (October 2010). NBER Working Paper No. w16466, Available at SSRN:

James Sallee (Contact Author)

University of Michigan at Ann Arbor ( email )

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Ann Arbor, MI 48109
United States

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