Impacts of fuel economy improvements on the distribution of income in the U.S

Abstract

We estimate the impacts of passenger car and light truck fuel economy improvements in the U.S. since 1975 on the real monetary incomes of U.S. households by income quintile over the period 1980–2014. We limit our analysis to the direct monetary impacts (fuel savings minus increased vehicle costs) and do not attempt a full welfare analysis. We include all vehicle purchases, new and used. Household fuel expenditures come from the U.S. Consumer Expenditures Surveys (CES). Costs of increased new passenger car and light truck fuel economy were obtained from four National Research Council (NRC) studies plus a literature review of earlier estimates. The NRC cost functions provide a unique time series of technology supply functions constructed by balanced expert panels and comprised of specific technologies proven to increase fuel economy. Effects of fuel economy improvements on used vehicle prices are based on an analysis of the CES data. Retrospective analysis indicates that all income quintiles received net savings and that the effect on the distribution of income was progressive. A prospective analysis of future fuel economy improvements produced similar results. Sensitivity analysis indicates that these findings are relatively robust.