Policy Research

Simulations for Including the Environmental Tax in Motor Liability Insurance

Cristian-Mihai Dragos, Simona-Laura Dragos, Cristina Ciumas

Summary

The article attempts to simulate the effect of a pay as you drive tax implemented into consumer’s car insurance plans. The article argues that the best way to combat inefficient levels of pollution in motor vehicles is to tax cars based on a factor of how much they drive, and how efficient the car is. It then argues that the best way to implement this tax is to bundle it with insurance, since insurance is difficult to evade. The article then argues that this method would be a stronger motivation for decreasing pollution then gasoline taxes.

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Policy Implications

This article can be used in setting efficient taxes to offset pollution, especially that of motor vehicles. This can be especially useful when considering recent volatility in gasoline prices, a pay as you drive tax would be able to better withstand these pressures. The primary difficulty in implementation is getting accurate measures of how many miles peoples have driven, this would likely require instillation of devices to track driving habits. This could be considered as the technology becomes cheaper to produce, especially considering many cars have wireless capabilities recently.