@article{Parry:10461,
      recid = {10461},
      author = {Parry, Ian W.H. and Small, Kenneth A.},
      title = {Does Britain or the United States Have the Right Gasoline  Tax?},
      address = {2004},
      number = {1318-2016-103431},
      series = {Discussion Paper 02-12-REV},
      pages = {57},
      year = {2004},
      abstract = {This paper develops an analytical framework for assessing  the second-best optimal level of gasoline taxation taking  into account unpriced pollution, congestion, and accident  externalities, and interactions with the broader fiscal  system. We provide calculations of the optimal taxes for  the US and the UK under a wide variety of parameter  scenarios, with the gasoline tax substituting for a  distorting tax on labor income. Under our central parameter  values, the second-best optimal gasoline tax is $1.01/gal  for the US and $1.34/gal for the UK. These values are  moderately sensitive to alternative parameter assumptions.  The congestion externality is the largest component in both  nations, and the higher optimal tax for the UK is due  mainly to a higher assumed value for marginal congestion  cost. Revenue-raising needs, incorporated in a "Ramsey"  component, also play a significant role, as do accident  externalities and local air pollution. The current gasoline  tax in the UK ($2.80/gal) is more than twice this estimated  optimal level. Potential welfare gains from reducing it are  estimated at nearly one-fourth the production cost of  gasoline used in the UK. Even larger gains in the UK can be  achieved by switching to a tax on vehicle miles with equal  revenue yield. For the US, the welfare gains from  optimizing the gasoline tax are smaller, but those from  switching to an optimal tax on vehicle miles are very  large.},
      url = {http://ageconsearch.umn.edu/record/10461},
      doi = {https://doi.org/10.22004/ag.econ.10461},
}