Abstract:In the U.S., the regulatory approach to automobile fuel choices has consisted almost exclusively of mandated changes in autos and fuel availability. This contrasts with Europe, where differential taxes and fees have been used to encourage the use of unleaded gasoline and diesel fuel. In this paper, I use data for 48 states from 1980 to 1989 to estimate the effect of price differences between leaded and unleaded gasoline on the rate at which leaded gasoline was abandoned. The estimates imply that a five cent additional tax on leaded gasoline may have caused a two-year acceleration in its phaseout and a ten cent tax may have caused leaded gasoline to virtually disappear by 1987, when it was still more than 20% of the gasoline supply.

Note:UC Davis Department of Economics, Working Paper Series #93-8.