The Optimal Gasoline Tax for China

C.-Y. Cynthia Lin, Jieyin Zeng

Department of Agricultural and Resource Economics, University of California at Davis, Davis, USA.

DOI: 10.4236/tel.[phone]                

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.

Keywords

Gasoline Tax, China

Conflicts of Interest

The authors declare no conflicts of interest.

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