Thursday, June 14, 2007

Reading this old post of Half Sigma reminded of something that's been bugging since high school. Higher gasoline taxes would mitigate some negative externalities, but surely they would exacerbate some positive externalities too. In my unscientific sample of the blogosphere, this is the first time I've seen this brought up! I blame myself for not putting my thoughts in writing sooner. My hesitation is due to my lack of data. But reading Half Sigma express the qualitative argument below compels me to at least make note of it.
But I fail to see a reason why the government should be discouraging gasoline usage. In other words, I fail to see that gasoline usage results in net negative externalities. I used the word "net" in there because most pundits fail to mention the positive externalities of gasoline usage. When you drive in your car you don't just benefit yourself, but there's almost always some other party who benefits. If you drive to work your employer benefits, if you drive to the store the store owner benefits, if you drive to visit friends and family they benefit from seeing you. To discourage driving is to discourage commerce, and commerce is a good thing.
Summarizing the above, gasoline reduces transaction costs; why should we assume this benefit doesn't exceed the negative externalities of gasoline? I'm not aware of any arguments for pointing the inequality in either direction, nor am I willing to hazard a guess right now.


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