Cheaper Gas and More Expensive Shoes

Abstract

With mounting concern about current social and environmental challenges, the notion of sustainable development—a paradigm calling for the integration of economic, social, and environmental goals—has gained increasing popularity in recent years. Within the transportation arena, sustainability advocates have argued for reducing reliance on the private automobile and seeking instead to foster alternative modes such as transit, biking, and walking; and many cities are actively pursuing this goal. Yet even the most concerted local efforts can be undermined by contradictory policy frameworks at higher levels of government, and a recent proposal for transportation finance reform in California serves as a good case in point. Intended to enhance the reliability of highway revenues, the proposal would eliminate a 5% sales tax on gasoline and replace it with a 0.25% increase in the general sales tax specifically earmarked for transportation. Basic economic analysis shows clearly, however, that eliminating the sales tax on gasoline would stimulate additional miles driven within the state, leading in turn to increased highway congestion and vehicle emissions. At the same time, increasing the general sales tax would shift a greater financial burden onto the shoulders of nondrivers from lower-income groups. In short, the recent California proposal, if enacted, would work counter to the three goals of sustainability—economic efficiency, social equity, and environmental responsibility—and surely frustrate local efforts to reduce reliance on the automobile.