Distributional Aspects of an Environmental Tax Shift: The Case of Motor Vehicle Emissions Taxes

Abstract

Policymakers are beginning to appreciate the efficiency properties of pollution taxes, but concerns over equity remain. In this paper, we assess the distributional aspects of three types of emissions fees for vehicles—a fee based on total annual emissions; afee based on emissions rates, in grams per mile; and afee based on annual vehicle mileage—and we compare the impacts of fees to existing vehicle registration fees. We find that all three of the emissions-related fees look quite a bit more regressive, on the basis of annual household income, than do existing registration fees. However, when we construct a lifetime income variable for our households, we find that the differential impacts of the three emissionsrelated fees over existing fees are quite small.