Wednesday, January 17, 2007

Robert Samuelson signs up

In his latest column, Robert Samuelson says we should "enact an energy tax equivalent to $2 a gallon on gasoline -- introduced over six years, or about 33 cents annually," making him the latest member of the Pigou Club.

I have proposed a more modest $1 increase, in part based on the research of Parry and Small, but of course there is a degree of uncertainty about how high the optimal tax is.

Samuelson also advocates more rigorous fuel-economy standards for cars. Here I part company with him. One purpose of Pigovian taxation, in my view, is to avoid heavy-handed regulations with all their unintended consequences. Higher gasoline taxes would provide consumer and auto companies the incentive to produce more fuel-efficient vehicles, making such regulation unnecessary.