This work models the impact of higher CAFE standards on producer and consumer welfare, gasoline consumption, externalities from increased driving, and the emissions of traditional pollutants. In particular, a long-run 3.0 MPG increase in the CAFE standard is estimated to impose welfare losses of about $4 billion per year and save about 5.2 billion gallons of gasoline per year, for a hidden tax of $0.78 per gallon conserved. An 11-cent-per-gallon increase in the gasoline tax would save the same amount offuel at a welfare cost of about $290 million per year, or about one fourteenth the cost. (JEL L51, Q30).
All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)
- Business, Management and Accounting(all)
- Environmental Science(all)