Gasoline and diesel fuel are heavily taxed in many developed and some emerging and developing countries. Outside of the United States and Europe, however, there has been little attempt to quantify the external costs of vehicle use, so policymakers lack guidance on whether prevailing tax rates are economically efficient. This paper develops a general approach for estimating motor vehicle externalities, and hence corrective taxes on gasoline and diesel, based on pooling local data with extrapolations from U.S.evidence. The analysis is illustrated for the case of Chile, though it could be applied to other countries.
Fiscal instruments are potentially among the most effective, and cost-effective, options for addressing externalities related to poor air quality, urban road congestion, and greenhouse gases.
This paper recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions.
This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use — global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles.