Posted by Daniel Hall on January 14, 2009
Over at the NYT Green Inc. blog, Kate Galbraith asks whether mileage taxes will replace gas taxes. The post is interesting and it has some arguments for and against. But it misses what economists would probably consider the main point: the taxes should be used to reduce the externalities associated with driving. In other words, rather than forcing society to bear the cost of extra pollution, congestion, oil dependence, etc., we should use taxes to force drivers to pay the dollar-equivalent of those costs. In response to the taxes, drivers will their behavior so that we get the socially optimal level of driving/fuel use (and the socially optimal level of pollution, congestion, etc.).
The next question then is whether the externalities associated with driving are more correlated with fuel use, or mileage. And it turns out the mileage-related externalities are much larger. Consider this paper, which estimates that mileage-related externalities are an order of magnitude larger (see Table 2 on page 36). Even if you would quibble with the specific numbers, the general direction is clear: mileage taxes would more directly address the major causes of external social costs from automobile use. And as an added bonus, the types of systems used to assess mileage taxes could be easily used to impose congestion-specific fees — a major benefit, since congestion is the single largest externality associated with automobile travel.
H/T: Tim Haab.