Lec. 11 Is Gasoline Undertaxed (overtaxed) in the US (UK) 9-17-10 sv

Lec. 11 Is Gasoline Undertaxed (overtaxed) in the US (UK) 9-17-10 sv

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Updating Parry (Source: NY Times, 6/29/08)
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British Government Defended High Gasoline Taxes on h M i G d Three Main Grounds. (Parry and Small, American Economic Review , 2005) 1. By penalizing gasoline consumption, reduce both emissions of carbon dioxide and local air pollution. (this is what I refer to as environmental damages) 2. Raise cost of driving and therefore directly reduce congestion and traffic related accidents. 3. Provide government revenue. Gasoline taxes provide equivalent of ¼ personal income taxes in UK. (and do so efficiently since fuel has a relatively low price elasticity) Double dividend
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External Costs Used in Parry and Small U.S. U.S. Best U.K. U.K. Best Estimate [range] Estimate in cents/gal. Estimate Estimate in cents/gal. Local air pollution, 2.0 40 2.0 40 ¢/mile [0.4-10] [0.4-10] Carbon Dioxide, @ 6 6 6 6 $25/ton CO 2 , ¢/gal. [0.2-24] [0.2-24] External 3.5 70 7.0 140 congestion, ¢/mile [1.5-9.0] [3-15] External Accident osts ile 3.0 2 5] 60 2.4 96 0] 48 Costs, ¢/mile [1.2-7.5] [0.96-6.0] Best Estimate in ¢/ gal. 176 234 g Adjusted for various factors 101 134
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Things to Ponder • Mankiw (10/20/06) “Tax incidence
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This note was uploaded on 12/20/2010 for the course AEM 25 at Cornell University (Engineering School).

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Lec. 11 Is Gasoline Undertaxed (overtaxed) in the US (UK) 9-17-10 sv

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