RFF-Resources-148-gasoline - is gasoline undertaxed in the...

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G asoline taxes vary dramatically across different countries. While the United Kingdom has a gasoline tax equivalent to $2.80 per gallon, the highest among industrial countries, the United States has the lowest tax of 40¢ per gal- lon (18¢ federal tax and on average about 22¢ state tax) (see Figure 1). It is commonly thought that Europeans have a greater tolerance for high fuel taxes than Americans, as they have shorter distances to travel and better access to public transport, although the fuel tax protests in Britain in September 2000 suggested that the political limits of such taxes might have been reached. A number of arguments are made for imple- menting high gasoline taxes. By discouraging driving and fuel combustion, gasoline taxes help to reduce local air pollution, carbon dioxide emis- sions (a greenhouse gas), traffic congestion, traffic accidents, and oil dependency. Taxing gasoline is one way of forcing people to take into account the social costs of these problems when deciding how much, and what type of vehicle, to drive. Gasoline taxes also provide a source of gov- ernment revenues. In Britain, gasoline tax revenues are several times highway spending, and the Labour government has argued that if gasoline taxes are reduced, schools and hospitals will have to close. But this argument is somewhat mislead- ing as the revenues could always be made up through other sources, such as income taxes. The real issue is what level of gasoline taxation might be justified when account is taken of the full social costs of driving, and the appropriate balance Even though the environmental and public safety benefits from higher taxes could be substantial, the United States has the lowest gasoline tax among industrial countries for a number of reasons. is gasoline undertaxed in the united states? Ian W.H. Parry 28 RESOURCES SUMMER 2002 • ISSUE 148
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between gasoline taxes and other taxes in raising rev- enues for the government. ENVIRONMENTAL EFFECTS Gasoline combustion causes local air pollution, notably smog and carbon monoxide. This pollution can reduce visibility, but its main harm is to human health. For example, poor air quality can exacerbate respiratory problems and lead to premature mortality. Economists have assessed the damages caused by air pollution using epidemiological evidence on the link between air quality and human health, and studies esti- mating people’s willingness to pay to reduce risks of adverse health effects. Damage estimates have fallen over the last 20 years or so as the vehicle fleet has become cleaner, at least partly in response to emis- sions-per-mile regulations that are imposed on new vehicles. According to a recent study by Kenneth Small and Camilla Kazimi (University of California–Irvine), pollution damages are around 2¢ per mile (after updating to 2000), or about 40¢ per gallon, though there is still much uncertainty over these estimates. Economists have also attempted to assess the
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This note was uploaded on 12/20/2010 for the course AEM 25 taught by Professor Poe during the Fall '10 term at Cornell.

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RFF-Resources-148-gasoline - is gasoline undertaxed in the...

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