Raising Feul Tax With respect to a proposal to raise the federa

The proposed increase in the federal transportation fuel tax would create the greatest impact on urban areas through the creation of negative externalities (Levy, 1985, 276). In lay language, externalities may be described as sideeffects and fringebenefits. Positive externalities may be viewed as fringebenefits, while negative externalities may be viewed as sideeffects. Externalities are also referred to as spillover effects, external effects, and social effects. All such terms refer, essentially, to the same phenomenon.

In economics, an externality exists when an activity by one or more parties affects, for good or for bad, another one or more parties who are not a part of, or are external to, the activity. The essence of this concept is that economic externalities are created when private costs or benefits fail to equal social costs or benefits. The consequences of any

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nt, if the proposed tax increase were effected. First, the increase in the cost of transportation would create an externality wherein individuals and families residing in the outer regions of urban areas would 5attempt to relocate closer to work locationsgenerally the city center. Such relocation would result in housing shortages, increases in housing costs, and increased congestion. Each of these externalities would impose significant additional social costs on both urban governments and on urban dwellers. Second, the increase in the cost of transportation would result in a shift of significant proportions from private transportation to public mass transit. Such a shift would impose significant new capital investment requirements at the local government level. Third, the increase in the cost of transportation would result in a shift of significant proportions in expenditures by individuals and families to transportation and away from other expenditure areasboth discretionary and subsistence. Such a shift would inevitably lead to increased public assistance requirements for urban level governments. Each of the externalities which would be created by the implementation of the proposed increase in the federal tr
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Approximate Word count = 2390
Approximate Pages = 10 (250 words per page)