Are Fuel Economy Standards Regressive?

31 Pages Posted: 12 Dec 2016

See all articles by Lucas W. Davis

Lucas W. Davis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: December 2016

Abstract

Despite widespread agreement that a carbon tax would be more efficient, many countries use fuel economy standards to reduce transportation-related carbon dioxide emissions. We pair a simple model of the automakers' profit maximization problem with unusually-rich nationally representative data on vehicle registrations to estimate the distributional impact of U.S. fuel economy standards. The key insight from the model is that fuel economy standards impose a constraint on automakers which creates an implicit subsidy for fuel-efficient vehicles and an implicit tax for fuel-inefficient vehicles. Moreover, when these obligations are tradable, permit prices make it possible to quantify the exact magnitude of these implicit subsidies and taxes. We use the model to determine which U.S. vehicles are most subsidized and taxed, and we compare the pattern of ownership of these vehicles between high- and low-income census tracts. Finally, we compare these distributional impacts with existing estimates in the literature on the distributional impact of a carbon tax.

Suggested Citation

Davis, Lucas W. and Knittel, Christopher R., Are Fuel Economy Standards Regressive? (December 2016). NBER Working Paper No. w22925. Available at SSRN: https://ssrn.com/abstract=2883962

Lucas W. Davis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

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2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

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Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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