UC Davis

In recent years, electric vehicles (EVs) have continued to grow. According to one forecast, EV share among registered cars will reach about 7% within a decade. The high share of EVs will accelerate the deficit in government revenues from gasoline taxes. Therefore, a vehicle miles traveled (VMT) tax is being discussed as an alternative to the automobile fuel tax. The government is considering the policy shift from a gasoline tax to a VMT tax, that affects almost populations, but few studies have evaluated the new policy while taking into account the growth of EVs. This paper bridges the gap between assessing the VMT tax and considering increasing EV penetration.

Chapter 1 discusses the distributional effect of a VMT tax when considering the penetration of electric vehicles. It studies the impact of a VMT tax introduction on vehicle choice and utilization in a two-period model that links two decisions on vehicle choice and subsequent driving. Also, it examines the consumer surplus changes in the short term due to policy shifts from a gasoline tax to a VMT tax according to vehicle types, fuel economy, and household attributes. The results show that the revenue-neutral VMT tax would increase consumer surplus by a modest $2 per vehicle per year. It also suggests that even if the government imposes the same federal VMT tax rate, each state could be a winner or loser depending on the average MPG, miles driven, and VMT elasticity. Ultimately, the results show that shifting policy towards a VMT tax becomes more efficient as the penetration of EVs grows. When the EV share reaches 5%, the incremental EV share generates an additional surplus equal to twice the surplus from adopting the revenue-neutral VMT tax. It can also reduce revenue and expenditure discrepancies without changing the tax rate.

Chapter 2 explores a VMT tax to increase government revenues as electric vehicle penetration grows and the long-term impact of that tax on consumer surplus. By taking the estimates from the two-period structural model for vehicle choice and utilization, it conducts a counterfactual analysis to increase government revenue by 30%. Based on the results, the following sensitivity analyses target the cases where government revenue increases from 30% to 100%, and the share of electric vehicles increases from 3% to 10%. As a result, the VMT tax generates a small but positive net consumer surplus compared to the gasoline tax when moderately increasing government revenues. Net consumer surplus from the VMT tax rises incrementally as the growth rate in government tax revenue increases. If the proportion of electric vehicles rises, a relatively more significant additional net surplus will occur. It implies that when raising revenue, the tax rate significantly affects consumer surplus more than the tax type. However, as the proportion of electric vehicles increases, tax type also becomes important in determining a tax rate and changing the consumer surplus.

Chapter 3 discusses the second-best optimal taxes by the three tax types considering the expansion of EVs in the US: gasoline tax, VMT tax, and combined tax of gas and VMT taxes. According to the model developed in this paper, the second-best optimal tax rates of flat VMT and flat VMT+gas taxes, converted in cents per gallon, are higher than the second-best optimal gas tax. However, both rates can improve social welfare more than the gas tax. The flat VMT+gas tax generates a significant welfare benefit as much as the VMT tax at the second-best optimal rates. In the early stage of introducing electric vehicles, among the best revenue-neutral taxes to maintain the current government revenue, only the flat VMT+gas tax provides positive welfare benefits. As long as the EV share does not exceed 40%, the flat VMT+gas tax is more favorable than the flat VMT tax. The EV VMT+gas tax is more advantageous regardless of the EV share than the VMT tax types capped with the current government revenue.

These three papers contribute to understanding of how the share of electric vehicles affects the surplus from the policy shift from a gasoline tax to a VMT tax. The cost of switching tax policies makes policymakers hesitant to adopt the new tax policy. However, the results of this dissertation provide evidence that adopting the new tax policy can benefit both private and public alike if sustained EV growth is to be expected.