Addendum: Carbon Taxes and Traffic

by robekulick

Via Twitter Brad posed an interesting question re: my blog entry this morning. Given those results, would a carbon tax reduce traffic. Here is my thinking:

I think the answer is certainly yes, but I think congestion pricing for busy roads could still be necessary in certain places. A carbon fuel tax would decrease traffic on roads by virtue of the fact that it would increase the relative price of driving in general. However, conditional on choosing to drive, people would still have an incentive to take the most direct route possible even if their valuation of time is lower than other drivers’ valuations of time. On the other hand, congestion pricing reduces traffic even conditional on the decision to drive because it will induce people with lower valuations of time to take alternative routes that may take longer.

One more quick comment. For those of you who know me as a somewhat Libertarian guy, you might be asking what on earth am I doing advocating two new forms of taxation. Here is my quick response to that. From an economic efficiency standpoint, taxing consumption makes way more sense than taxing say income, corporate income, or capital gains. I need to write a more extensive post on taxation when I have a bit more time, but it would be a very good thing for America to start relying more on the taxing of consumption and less on other forms of taxation. So at the very worst, I just view congestion taxes and carbon taxes as consumption taxes. Furthermore, they’re consumption taxes that are very likely to reduce externalities caused by traffic and pollution. This is much, much better than say discouraging people from investing in efficient projects by taxing capital or discouraging work/innovation by taxing income.