Theoretical Economics Letters
Volume 4, Issue 4 (April 2014)
ISSN Print: 2162-2078 ISSN Online: 2162-2086
Google-based Impact Factor: 1.19 Citations h5-index & Ranking
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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