The Possibility of a Pigovian Crash Tax

Abstract

This paper explores the possibilities of using Pigovian taxes to internalize the costs of automobile crashes. Automobile crashes cause significant externalities. This would seem to provide a justification for a Pigovian tax. This paper constructs a model in which drivers calculate costs of crashes as a fraction of their ability to pay. Under this model, Pigovian taxes will not be able to influence behavior once a driver’s expected costs equal everything he or she can pay.