TITLE:
The Optimal Gasoline Tax for China
AUTHORS:
C.-Y. Cynthia Lin, Jieyin Zeng
KEYWORDS:
Gasoline Tax, China
JOURNAL NAME:
Theoretical Economics Letters,
Vol.4 No.4,
April
24,
2014
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]
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[2]
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, 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.