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  4. May 2013
  5. Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity

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

  • Mark R. Jacobsen
American Economic Journal: Economic Policy
vol. 5, no. 2, May 2013
(pp. 148-87)
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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)

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

Additional Materials

JEL Classification

  • 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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