How Do Households Respond to Increases in Fuel Economy? Regression Discontinuity Evidence

Presenter
Steven L. Puller, Texas A&M University

Abstract
Due to the high political costs of raising the tax rate on gasoline, the U.S. instead combats the negative externalities associated with gasoline consumption by regulating the fuel efficiency of new cars sold. However, the success of these Corporate Average Fuel Economy (CAFE) restrictions depends crucially on whether inducing households to drive more fuel efficient cars causes them to drive more miles, which would offset some or all of the reduction in gasoline consumption. We examine this question by applying a regression discontinuity design to exploit the increase in vehicle fuel efficiency induced among new car buyers in Texas during the “Cash for Clunkers” program in 2009. While new car buyers whose “clunker” was barely eligible for the subsidy drove a similar number of miles per year prior to the policy and are similar in other ways to barely ineligible new car buyers, they bought significantly more fuel efficient vehicles. However, despite having a more fuel efficient vehicle fleet, the barely eligible households did not respond by driving more miles following the program. As a result, the barely eligible households reduced fuel consumption.

Date
Friday, October 25, 2013
12:00 - 1:30 p.m. A light lunch will be provided.

Location
7th Floor Conference Room
1616 P St. NW
Washington, DC 20036 All seminars will be in the 7th Floor Conference Room at RFF, 1616 P Street NW unless otherwise noted. Attendance is open, but involves pre-registration no later than two days prior to the event. For questions and to register to an event, please contact Karen Furman at [email protected]. Updates to our academic seminars schedule will be posted at www.rff.org/academicseminarseries.