Monday, May 3, 2010
Studded Tires, Biking and Pigovian Taxes
First, let's be clear - a tax on studded tires would NOT BE a new tax. The tax is already there - it is imposed on all of us to pay for the damage studded tires do to our roads. The specific Pigovian tax would do two things: it would assess the tax on the people who engage in the activity that creates the social cost and, more importantly perhaps, it would DISCOURAGE that same activity. This is why such taxes are efficient: in the end only those who really need studded tires will use them and they will pay for the additional wear and tear to the roads. As a result we should see less of the activity that has negative external costs.
Also in the comments the issue of bikes arose. As I have stated before, it is likely that biking creates a net social benefit, not a net social cost. Improved health, lower emissions, less congestion and less wear and tear on the roadways could reasonably be expected from increased biking, so by the same principle we should be subsidizing bike riding. Which we do of course by investing money in bike paths, bike lanes, bike boulevards, etc. The Pigovian principle suggests that these are entirely appropriate expenditures.
And finally, Jeff in the comments wonders why such a tax would be considered a 'liberal' fix to the problem. He thinks of it as a 'conservative' response - just as a number of conservative economists, most notably Greg Mankiw, have repeatedly endorsed Pigovian taxes, this preserves the choice of studded tires for those who really want or need them but it places the responsibility of paying for the added wear and tear on the very user themselves and returns efficiency to the market. It is a market based response that preserves individual liberty but requires individual responsibility.
To me it is just the right economic response.