TEL> Vol.4 No.4, April 2014

The Optimal Gasoline Tax for China

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ABSTRACT

Gasoline-powered vehicles produce many negative externalities including congestion, air pollution, global climate change, and accidents. A gasoline tax is perhaps the best policy to jointly address these externalities. This paper calculates the optimal gasoline tax for China. Using a model developed by Parry and Small [1] [2], we calculate the optimal adjusted Pigovian tax in China to be $1.58/gallon which is 2.65 times more than the current level. Of the externalities incorporated in this Pigovian tax, the congestion costs are taxed the most heavily, at $0.82/gallon, followed by local air pollution, accident externalities, and finally global climate change.

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Cite this paper

Lin, C. and Zeng, J. (2014) The Optimal Gasoline Tax for China. Theoretical Economics Letters, 4, 270-278. doi: 10.4236/tel.2014.44037.

References

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