Publication Detail

The Optimal Gasoline Tax for China



Sustainable Transportation Energy Pathways (STEPS)

Available online at: 10.4236/tel.2014.44037

Suggested Citation:
Lin Lawell, C.-Y. Cynthia and Jieyin (Jean) Zeng (2014) The Optimal Gasoline Tax for China. Theoretical Economic Letters 4 (4), 270 - 278

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.
Keywords: Gasoline tax; China