Title: Automobile fuel efficiency policies with international innovation spillovers
Authors: Barla, Philippe
Proost, Stef
Issue Date: May-2008
Publisher: K.U.Leuven, Faculty of Economics and Applied Economics : Department of Economics
Series Title: CES - Discussion paper series (DPS) 08.17 pages:1-24
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.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center of Energy, Transport and Environment, Leuven

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