Can taxes on cars and on gasoline mimic an unavailable tax on emissions

An emissions tax is efficient, but measurement of every car’s emissions would be inaccu-rate and expensive. With identical consumers, we demonstrate the same efficiency for: an emissions tax; a gas tax that depends on fuel type, engine size, and pollution control Ž.equipment PCE; a vehicle tax that depends on mileage; or a combination of uniform tax rates on gasoline and engine size with a subsidy to PCE. With heterogeneous consumers, efficiency can be obtained by a vehicle-specific gas tax or mileage-specific vehicle tax, but not by flat rates. We characterize second-best uniform tax rates on gasoline and on car characteristics. 2001 Elsevier Science Continued growth of cities, increases in vehicle-miles traveled, and Americans’ renewed love for large vehicles contribute to increasing externalities from vehicle emissions, including worsened health, diminished visibility, and possible global warming. Technological advances in the measurement of car emissions renew hope Ž .that a tax can be levied directly on these emissions Harrington et al. 23. If so, Ž .individuals would reduce pollution efficiently Pigou 34. At least for the time being, however, the emissions taxes or permits that work well for stationary source