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Electric Vehicles, Motor Fuel Taxes, and Road Funding in the Seventh District and Beyond
Emma LaGuardia, research assistant, Kristin Dziczek, policy advisor, and Rick Mattoon, vice president and regional executive, Detroit Branch
State and federal highways are currently funded by a combination of motor fuel taxes (MFTs), general fund transfers, fees, tolls, property taxes, and bond revenues. The MFT share of funding is declining due to increasing overall fuel economy trends, inflation, and recent vehicle miles traveled (VMT) trends—especially during the 2020–21 pandemic years which saw lower passenger and freight travel. Electric vehicles (EVs) have the potential not only to accelerate the fuel efficiency of vehicles in use, but also to lead to a sizable population of individual road users who pay no fuel taxes. A recent study estimated that EVs reduce gas tax revenues by $250 million a year. So how will states pay to fix the roads?
Economic Perspectives is a journal of in-depth articles reporting on the Bank's economic research. Opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.
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