How Autonomous Vehicles May Impact State Revenue

States draw a substantial portion of their tax revenue from motor vehicles. These revenues include gas taxes, registration fees, and sales taxes on vehicle purchases. If autonomous vehicles (AVs) are widely adopted, the economic and fiscal effects on states will be substantial. 

In this white paper for The Pew Charitable Trusts, William F. Fox, professor of economics at the University of Tennessee, Knoxville, predicts how state revenue will be affected by the adoption of autonomous vehicles. This analysis considers four scenarios, each marked by differing time frames for AV adoption and effects on overall vehicle numbers, and estimates their revenue effects in six states: California, New Hampshire, New York, Ohio, Tennessee, and Texas.

In each scenario presented in the paper, the increased use of AVs reduces future state revenue. Much of this decline is tied to Fox’s expectation that AVs will be electrically powered, causing a drop in fuel tax revenue. Revenue from sales taxes and vehicle registration fees is also forecast to decline due to reduced car ownership and wider use of AV fleets and ride-sharing services. In the most extreme scenario presented in the paper in which AVs are fully adopted by 2040 and overall vehicle numbers are cut in half—state revenue losses would range from 2 percent to just under 10 percent in the six states examined. Scenarios with longer time frames for adoption and lower reductions in vehicle numbers reduce revenue by less.

To offset these potential drops in state revenue, policymakers could levy vehicle-mile taxes, congestion charges, or taxes on transportation services such as ride-sharing companies. States may also need to consider how a shift toward AVs may affect employment in automotive and related industries, thereby affecting personal income tax receipts. By anticipating how future technologies could affect state budgets over the long term, states can proactively prepare.