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VI. Raising Fuel Taxes

This is a strategy that has been relatively effective in some European countries (e.g. Italy), resulting in lower annual VMT per vehicle and a shift towards more fuel-efficient vehicles (OECD, 1995). There is considerable scope for similar action in the United States, especially in view of the shift in recent years towards high-powered vehicles such as SUVs and trucks. However, this scope is more theoretical than practical. Even if the long-run price elasticity of demand is higher than the evidence suggests, the prospects for a significant increase in the Federal fuel tax are very bleak in a political environment of opposition to higher taxes. Voting for an increase in the fuel tax sufficient to have a major dampening effect on VMT growth and/or fuel consumption would probably be an act of political suicide, even if the revenues were protected for transportation projects. Whether recent market-driven price increases will affect travel behavior remains to be seen.

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