Would perfectly internalizing motor vehicle externalities make the economy less efficient? Jerry Taylor and Peter Van Doren of the Cato Institute make that claim in a paper advocating the repeal of federal and state gasoline taxes. The paper has picked up a couple of high profile econoblogging mentions – from Tyler Cowen, Greg Mankiw, The Economist’s FreeExchange among others.
I haven’t read the paper yet, yet suspect that I will be largely sympathetic to the conclusions reached. But I wonder what Taylor and Van Doren mean when they say, in the executive summary, that “perfectly internalizing motor vehicle externalities would likely make the economy less efficient—not more—by inducing motorists into even more (economically) inefficient mass transit use.”
Since mass transit relies on motor vehicles (are their exceptions?), if externalities associated with motor vehicles are perfectly internalized then persons desirous of transit would face the appropriate prices at the margin across private and publicly-organized alternatives.
I suppose it is a little unfair to pick at the logic in the executive summary, which necessarily omits much of the explanation. I guess I’ll have to read the paper.