van den Bijgaart, Inge Klenert, David Mattauch, Linus Sulikova, Simona
Year of Publication:
CESifo Working Paper No. 8762
Transport has significant externalities including carbon emissions and air pollution. Public health research has identified additional social gains from active travel, due to health benefits of physical exercise. Per mile, these benefits greatly exceed the external costs from car use. We introduce active travel into an optimal fuel taxation model and analytically characterise the optimal second-best fuel tax. We find that accounting for active travel benefits increases the optimal fuel tax by 49% in the US and 36% in the UK. Fuel taxes should be implemented jointly with other policies aimed at increasing the uptake of active travel.
transport externalities congestion active travel fuel health behaviour optimal taxation