Environmental Policies in the Transportation Sector: Taxes, Subsidies, Mandates, Restrictions, and Investment

Abstract

<p>The transportation sector is associated with many negative externalities, including air pollution, global climate change, and traffic congestion. In this paper we discuss several possible policies for addressing the emissions and other environmental externalities from the transportation sector, including taxes, subsidies, mandates, restrictions, and investment. Most economists generally recommend that policy-makers use incentive- (or market-) based instruments as opposed to command and control policies whenever possible. However, various economic and political constraints can preclude policy instruments that would in theory achieve a first-best outcome from being employed, and policy-makers have often implemented alternative policies such as subsidies, mandates, restrictions, and/or investment instead. Our discussion and analysis of these policies draws upon and synthesizes research using theoretical models, behavioral and experimental economics, empirical analyses, and structural econometric modeling.</p>