The incidence of a vehicle tax to reduce automobile pollution is examined over
all affected groups: consumers, stockholders, pollution sufferers, and government expenditure beneficiaries. Gains and losses are estimated under alter
native assumptions about industry pricing. The net effect of the tax is regressive
if government expenditure benefits are distributed neutrally. Under different
expenditure assumptions the tax effect becomes progressive, but the results
suggest that a tax on emissions rather than vehicles may be more equitable as
well as more efficient.
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