Impacts of long-range increases in the fuel economy (cafe) standard

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This work models the impact of higher CAFE standards on producer and consumer welfare, gasoline consumption, externalities from increased driving, and the emissions of traditional pollutants. In particular, a long-run 3.0 MPG increase in the CAFE standard is estimated to impose welfare losses of about $4 billion per year and save about 5.2 billion gallons of gasoline per year, for a hidden tax of $0.78 per gallon conserved. An 11-cent-per-gallon increase in the gasoline tax would save the same amount of fuel at a welfare cost of about $290 million per year, or about one-fourteenth the cost. (JEL L51, Q30).

Original languageEnglish (US)
Pages (from-to)279-294
Number of pages16
JournalEconomic Inquiry
Issue number2
StatePublished - Apr 2004

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics


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