International fuel tax assessment: an application to Chile

Abstract

Gasoline and diesel fuel are heavily taxed in many developed and some emerging and developing countries. Outside the United States and Europe, however, there has been little attempt to quantify the external costs of vehicle use, so policy makers 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 US evidence. The analysis is illustrated for the case of Chile, although it could be applied to other countries.

Workable Environmentally Related Energy Taxes

“…In spite of this, most studies adopt a global damage function used to derive a corresponding shadow price of marginal CO2 emissions, but with a wide range of values (Parry and Strand, 2010). Based on a lower to central marginal damage cost per metric ton of carbon, and taking into account CO2 emissions associated with each EP, it is possible to estimate the value of the global damage per unit of EP consumed.…”

“…We do not incorporate other externalities (e.g., transport congestion or road use) apart from environmental costs in the evaluation of tax reform. These are highrelative to environmental damage-in the estimates of Parry and Strand (2010) for Chile. We do not include these externalities because they will blur the role of environmental costs in the resulting tax structures and because we assume that other instruments will tackle them better than fuel taxes (see Parry, 2011).…”

“…Recent applied papers on the subject (see Parry and Strand, 2010, for Chile) include environmental (local and global impacts) and non-environmental (e.g., transport congestion) issues. They compute other externalities associated with the use of car fuels, mainly accidents and congestion, which account for more than 75 percent of total externalities for each fuel.…”

“…16 Nevertheless, we should note that statements regarding over-taxation of certain energy goods in our results below (e.g., gasoline in Uruguay) are relative to the consideration of environmental effects and the use of alternative instruments to deal with transport issues. Given the size of other externalities in total external costs estimated by Parry and Strand (2010) for Chile, it can be seen that the overtaxation result can be easily reversed if only fuel taxes are used to adjust for all external costs.…”

Meta-analysis of the income and price elasticities of gasoline demand: public policy implications for Latin America

“…There are also collateral effects whose incidence is very heterogeneous, such as changes in property values related to air pollution and noise (Verhoef, 1994;Schipper, 1996). The magnitude of these costs in Latin America is certainly significant and will probably carry on rising if the current development style is maintained (Parry and Strand, 2010;Hernández and Antón, 2013). These negative effects are concentrated in urban areas, which is a cause for concern considering that about 80% of the Latin American population currently lives in these and the region's urban population is expected to rise to 640.1 million by 2050.…”