Thursday, March 29, 2007

Joining the Pigou Club

This morning I attended an AEI event on if we taxed energy enough. Greg Mankiw of the Pigou Club fame was there (and was really the reason why I went). He gave convincing arguments for joining the club, even if CO2’s impact on the weather is minor or negligible. He argued that the $1/gallon tax should correspond to a drop in the income tax by 2%, or something along those lines. That eliminates some distortion in the tax code and taxes negative externalities such as congestion, accidents, pollution. I formally was reluctant to endorse any sort of tax increase, even Pigouvian (the government doesn’t exactly have a great track record on intelligent taxation) but he persuaded me only so long as the gas tax corresponds to a decrease in other taxes.

I talked to him after words and asked him if congestion based pricing for driving on roads similar to London would be more efficient. He said that it would once the technology becomes better. It looks like that is possibly where the next major change in roads will be.

1 comment:

jeremy h. said...

On the negative externalities:

1.) Congestion - The amount of congestion you contribute is in no way proportional to the number of gallons you consume. In South Dakota there is virtually no congestion at any time of day, but there is plenty in the DC area, although I consume about as many gallons now as I did back home. Tolls have been around for centuries and seem like the best simple method, with no leaps in technology.

2.) Accidents - Again, completely unrelated to gallons consumed. Full liability seems like the way to go.

3.) Pollution - This is probably the best candidate for a per gallon tax. But it is still not directly related to gallons consumed, with engine type, driving conditions, etc all being factors.