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American Economic Journal: Economic Policy: Vol. 5 No. 2 (May 2013)

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Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity

Article Citation

Jacobsen, Mark R. 2013. "Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity." American Economic Journal: Economic Policy, 5(2): 148-87.

DOI: 10.1257/pol.5.2.148

Abstract

This paper employs an empirically estimated model to study the equilibrium effects of an increase in the US corporate average fuel economy (CAFE) standards. I identify and model heterogeneity across firms and find that the profit impacts of CAFE fall almost entirely on domestic producers. The welfare analyses consider the simultaneous household decision of vehicle and miles traveled, allowing direct comparison with a gasoline tax. Finally, I consider dynamic impacts in the used car market. I find these comprise nearly half the gross welfare cost of CAFE and fall disproportionately on low-income households. Contrary to previous results, the overall welfare costs are regressive. (JEL H24, L51, L62)

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Authors

Jacobsen, Mark R. (U CA, San Diego)

JEL Classifications

H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
L51: Economics of Regulation
L62: Automobiles; Other Transportation Equipment

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