Suboptimal policymaking paragraph of the day
Posted by Rich Sweeney on January 15, 2008
From the CBO Director’s Blog summary of a recent study on consumer responses to gasoline price increases. Not too much new here, but this paragraph caught my eye. Yet another example of how politicians’ categorical opposition to all taxes leads to poor policymaking and mixed incentives:
The study notes that the response of consumers to higher gasoline prices has important implications for policies that affect gasoline consumption, including CAFE (Corporate Average Fuel Economy) standards for cars and light trucks. Because higher gasoline prices increase the demand for vehicles with better fuel economy ratings, they reduce the economic costs (and fuel savings) of adopting more-stringent CAFE standards. At the same time, to the extent stricter CAFE standards improve fuel efficiency beyond what consumers would choose in the absence of such standards, they reduce the per-mile costs of driving — which would partially reverse some of the effects of higher gasoline prices discussed in this study. The federal tax on gasoline, by contrast, reinforces rather than neutralizes the behavioral and vehicle choice effects of higher gasoline prices. It also immediately affects all motorists’ incentives to reduce gasoline consumption, whereas CAFE standards primarily affect motorists only after they replace the vehicles they were driving at the time the standards were implemented.