In this study we investigate the impacts of fuel economy on income quintiles using data from Consumer Expenditures Surveys (CES) from 1980 to 2014. Decomposition analyses of household expenditures on vehicles and fuel quantify the factors causing changes for each income group over the past quarter century. Although the CES data allow us to separate the benefit of increased fuel economy from changes in fuel prices and vehicle use, the data do not permit us to separate the costs of fuel economy improvement from all the other reasons for changes in vehicle prices. We address this problem in a few ways. First, we attempt to determine whether the prices of used vehicles are determined by the depreciated prices of new vehicles or if model years with higher than average fuel economy command rent based on expected fuel savings over the vehicles’ remaining lifetimes. We then draw on estimates of the costs of fuel economy improvements to new vehicles in the published literature. We then estimate a plausible range for the portion of the increases in vehicle expenditures that could be attributed to increased fuel economy. Applying those percentages to the observed change in household expenditures on vehicles due to changes in expenditures per vehicle, we estimate the costs of fuel economy improvements to buyers of new and used vehicles and the net savings or cost of fuel economy improvements by income quintile.
