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WORKINGPAPER 6/96 Distributional Impacts of an


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If the fees are used to replace existing registration fees, however, none of the three fees look significantly different on a lifetime income basis from existing registration fees. We calculate ongoing registration fees as a fraction of annual income and of lifetime income; we then look at three alternative revenue-neutral fees, a fee based on annual vehicle miles driven (VMT), a fee based on emission rates in grams per mile (g/mi) and a fee based on total emissions (g/mi multiplied by VMT). We briefly discuss some results in the literature using these different approaches and conclude by showing our constructed lifetime income variable and how it compares to annual income.

Grouping people by annual income using cross-sectional data will mean that some young and old people in the lower income brackets may not belong there by lifetime income. Both studies use the PSID to estimate relationships between various demographic variables and lifetime income. Both studies find that the taxes they look at are less regressive based on lifetime income than annual income, but more regressive than when viewed as a fraction of annual consumption.

For married households, its measure of household income is the average of the husband's and wife's income. The table shows both the potential annual lifetime earnings as defined by Fullerton and Rogers (1993) and used by Rogers (1993) and the adjusted annual lifetime earnings variable that we use in our distributional analysis below. This ensures that the average adjusted annual lifetime earnings equals the average annual earnings for our sample.

The California Data

Our emissions data come from a California dataset of over 90,000 vehicles that underwent remote sensing in 1991 (Stedman, et al. The main systematic way in which emissions differ between vehicles is by model year. Most importantly , emissions systems deteriorate over time and sometimes break down completely; even vehicles that were very clean when new can be very high polluting after a few years, especially if they are not well maintained. We use remote sensing data to calculated average hydrocarbon (HC) emission rates by vehicle age for cars and light trucks.13 We assign these averages to our NPTS vehicles.

The weighted (by VMT) average of HC emissions in California in 1990 is 2.49 g/mi, six times the 1990 federal standard for new vehicles.

Environmentally-Based Vehicle Registration Fees

In fact, the most efficient fee would be one that takes emissions readings during actual driving in areas and times of the day and year with serious air quality problems. The most serious air quality problem, ozone, is primarily an urban summertime phenomenon, and a tariff based on HC (and/or NOx) emissions differentiated in these ways would be ideal.15. Although a fee based on total emissions is likely to be more efficient, we also look at a fee based on VMT and a fee based on emission rates.

VMT fees may initially be more politically acceptable because the public tends to believe that existing inspection programs already "take care of the emission rate problem".16. The appearance of a VMT fee will also be very similar to the appearance of a petrol. tax increase, a policy that would be administratively easiest to implement. Furthermore, it is possible that an emission fee would be used to replace existing I&M programs.

In this case, a system that focuses on emission rates - such as existing I&M programs - may be more acceptable. 16 Deakin (1995) reports that members of several focus groups she conducted in California expressed this view and expressed "outrage" when told about L&M waivers and different I&M pass/fail "cutoffs" for vehicles of different ages. The 1990 Clean Air Act amendments raised the required waiver limit to $450, but EPA appears to be backing away from that. requirement, or at least, move to allow states to phase it in over time.

All states set different allowable emission limits for vehicles of different ages, with older vehicles allowed to pollute at a higher rate. If we divide the total mileage of all passenger vehicles in California by the total registration fees paid by those vehicles under the existing system, we end up with an average VMT-based registration fee of 0.94 cents per mile. This corresponds to approx. 16 percent of fuel costs in 1990 for an average California vehicle (equivalent to a gasoline tax of about 19 cents per gallon).

If we multiply our HC emission rates by the mileage for each vehicle and divide the resulting total number of emissions by the total registration fees paid under the existing system, we end up with an emission fee of 0.46 cents per gram.17 Finally , performing a similar. An emissions rate charge is like an emission charge calculated on the assumption that all vehicles travel the same number of miles per year.18.

Distributional Findings

Under the VMT rate, households in the lowest quintile pay, as a share of income, more than double what the average household pays -- 1.54 percent versus an average of 0.76 percent; they pay 2.5 times the average for the two emissions fees. Not only do households in the poorest quintile pay significantly more as a share of annual income with the two emissions fees than their counterparts in the richest quintile, they even pay more in absolute dollar terms on a vehicle basis. The Suits indices for the three environment-based fees are dramatically different from the Suits index for the existing fees.19 The existing registration fee has a Suits Index of -0.09; VMT, emissions and emission rates have Suits Indices of -0.28 respectively.

Under the total emissions tax, households in the bottom quintile would pay an average of $92 more per year in registration fees ($182 per household versus just $90 under the existing system), an additional 1.1 percent of their income. In contrast, households in the top quintile would pay $74 less per year in registration fees ($310 per household versus $384 under the existing system). The VMT rate does not appreciably differ from the existing registration fee system and both rates appear to be only slightly regressive.

The Suits Index, on a lifetime earnings basis, for the VMT fee is -0.06 compared to -0.03 for the existing registration fee. Under even the worst of the charges, the emissions price-based charge, households in the poorest quintile pay only an additional $37 a year ($134 versus $97 under the existing system), less than half of one percent of their annual lifetime income. This also holds up in the lifetime income results, as households in the bottom quintile are worse off under the emissions rate-based tax, although the effect is greatly diluted.

Even on a lifetime income basis, the two emissions charges -- particularly the rate-based fee -- now look noticeably more regressive than California's existing registration fee system. The new Suits indices, based on lifetime income, are -0.16 for total issue fee (compared to -0.11 when issue rates were model year averages) and -0.19 for issue fee fee (compared to - 0.14). Under the existing system of registration fees, households in the bottom and top quintiles pay virtually the same proportion of their lifetime income in fees, at 0.5 percent.

The differential impacts on the existing system remain quite small for a charge based on total emissions, but start to appear significant for a charge based on emission rates. Households in the lowest quintile of lifetime income would pay, on average, an additional $65 per year with a fee based on emissions rates, an additional 0.5 percent of their annual lifetime income.


Such a data set will shed more light on the important distributional impacts associated with emissions tariffs. In this paper, we find that tariffs based on emission rates or total annual emissions are regressive, especially on the basis of annual income, but also on the basis of a constructed measure of lifetime income. A charge based on annual VMT is less regressive than the two emissions charges - poorer households tend to drive fewer kilometers than wealthier households.

Based on annual household income, all three fees appear more regressive than California's current vehicle registration fees. The use of lifetime income greatly mitigates these regressive findings, and none of the fees are significantly different from current California vehicle registration fees based on lifetime income. Using lifetime income, we find that the VMT fee would be about the same as the current registration fees, while both emission-based fees look only slightly more regressive than the current fees.

Using annual income as a measure of a household's economic well-being, all three fees look pretty good. This means that emissions fees may be more regressive than we found using average age-based emission rates. 2 We adjust the potential lifetime income figures downward so that the average is equal to the average annual income.

1This is a weighted average based on mileage; unweighted average emission rate is 2.80 g/mi. 34; Reducing Emissions from Old Cars: The Economics of the Delaware Vehicle Retirement Program," Resources for the Future Discussion Paper 94-27 (April). Paper presented at the National Tax Association Meeting of the Allied Social Science Association, Boston, Massachusetts, 3-5 .in January.

34;On-Road Remote Sensing of CO and HC Emissions in California: Final Report." Prepared for California Resources Board, Sacramento, California (February). Cavana, Bob, Rob Crozier, Barrie Davis, and Perumal Pillai "A Survey of academic staff attitudes towards the system of academic titles used in New Zealand universities." Boles de Boer, David and Lewis Evans "The economic efficiency of telecommunications in a deregulated market: the case of New Zealand".

Zahirul Hoque and Manzurul Alam 'Quality management and accounting in a New Zealand service organisation: Towards an institutional perspective on management accounting'.

Table  1.  Roger
Table 1. Roger's (1993) Estimated Lifetime Income Eqnation Using PSID Data


Table  1.  Roger's (1993) Estimated Lifetime Income Eqnation  Using PSID Data
Table 2.  Summary Statistics for Annual and Lifetime Income  for California Households in 1990
Table 3.  Vehicles, Annual Mileage, Emissions  and Registration Fees in California in 1990
Table 4.  Incidence of Alternative Registration Fees in California  by Annual Income Quintile


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