More on Pigovian Taxes

Steven Levitt of Freakonomics has a great post in favour of further petroleum taxes. Interestingly, he argues that carbon taxation to prevent global warming is less important than reducing congestion and traffic accidents for social welfare. I suspect that he is not properly factoring in the globally felt negative externalities of global warming, but his conclusion is nonetheless correct that at least a tax of USD 1.00 on petroleum is dearly needed.

The most economically efficient solution to the issue of congestion, ie a proper Pigovian tax, would be a system like London's centre where only those vehicles which have paid a daily fee may enter. Their system relies on sophisticated network of cameras and plate recognition software to automatically bill and fine drivers.

Traffic accidents are doubtless a problem which should be seriously considered. I would expect that insurance and lawsuits already captures those externalities, but I do think a tax on vehicle size and weight per mile driven would help to counter the runaway arms race of personal safety that exists in vehicle addicted nations. I am mostly referring to the exorbitant demand for SUVs particularly for women. The individual driver, surrounded by an armada of SUVs piloted by cellphone distracted drivers, is not inclined to purchase a Volkswagon Golf. Thus the rational individual, in the interests of self preservation, chooses to join the backwards collective. This lesson I learned quite vividly on my first visit to Texas.

Nonetheless, a gasoline tax would as Levitt suggests have a beneficial effect on many things including congestion, traffic accidents, climate change and obeisity.


Nomad said...

A carbon tax and gasoline tax are probably the best answers. Ethanol is a terrible waste of time and smacks of a financial hype/bubble. Cap-and-trade schemes seem good, but a recent economics review in the Economist pointed out that in order for it to function successfully - which the European scheme does not - it needs attributes of a carbon tax anyway. Of course, a carbon tax is probably a little too straightforward and honest.

Nomad said...

You raise a good point about the SUVs. I've witnessed close relatives of mine opting for SUVs only in part for the added space for a large family, but also because of the supposed protection it provides to female drivers. Some have already upgraded to full-sized trucks. It's like an arms race!

Nomad said...

Traffic accidents are also one of those anomalies of the American psyche: more Americans a year are killed by automobiles than by terrorism, even more than were killed in the entire Vietnam war. The number of Americans dying from obesity-related health problems is even higher, somewhere in the hundreds of thousands a year. I believe I have mentioned this before, but there is a severe mis-valuation on the part of Americans as to the threats to their well-being.