Abstract:Indirect taxes on transportation activities that pollute can correct externalities and close the gapsbetween private and social costs. However, policy makers often find such Pigou taxes difficult toimplement because of political resistance due to possibly adverse affects on equity. For this reason itis important to assess the distributional aspects of environmental levies. This article estimatesproperties of the demand for transportation in parametric and non-parametric analyses of ConsumerExpenditure Surveys for the United States, 2000, and finds patterns in the resulting set of Engelcurves. Private transportation using air flights and new automobiles have Engel elasticities aboveunity while public transportation via mass transit has Engel elasticity below unity. The findings can beinterpreted in an important way since they show that a differentiated scheme of environmental taxeson transportation may function progressively. A Pigou scheme with larger taxes on modes oftransportation that pollute more appears to coincide with larger levies on luxury modes preferred byricher households.Keywords: consumption patterns, double dividend, Engel curves, environmental levies, equity,externality, indirect taxation, Pigou correction, redistribution, transportation, travel
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