Effects of Redistributive Tax Policies on Fuel Demand

Abstract

The objective of this study is to evaluate the efficiency of policies aimed at reducing fuel demand. A model is developed to illustrate the channels through which policies --- such as fuel taxes and electric vehicle subsidies --- affect fuel demand. The model is based on a consumer theory framework at the household level. I model consumption of fuel and vehicles simultaneously and study the consumer's choice between a combustion vehicle and an electric vehicle. The study underlines the role of income elasticity of vehicle miles traveled in consumers' vehicle choice, and explores the policy implications of this role. The National Household Travel Survey's data is used to uncover stylized facts of fuel demand, which I compare with those exhibited by my model. Studying this subject is crucial for understanding and enhancing the effectiveness of policies aimed at reducing fuel demand, which is key to addressing climate change by promoting sustainable transport options.