- We estimate the optimal gasoline tax for a typical less-developed, oil-producing country like Mexico.
- The relevance of the estimation relies on the differences between less-developed and industrial countries.
- The optimal gasoline tax is $1.90 per gallon at 2011 prices.
- Distance-related pollution damages, accident costs and gas subsidies account for the major differences.
- Gasoline tax incidence may be progressive in less developed countries.
This paper uses the methodology of Parry and Small (2005) to estimate the optimal gasoline tax for a less-developed oil-producing country. The relevance of the estimation relies on the differences between less-developed countries (LDCs) and industrial countries. We argue that lawless roads, general subsidies on gasoline, poor mass transportation systems, older vehicle fleets and unregulated city growth make the tax rates in LDCs differ substantially from the rates in the developed world. We find that the optimal gasoline tax is $1.90 per gallon at 2011 prices and show that the estimate differences are in line with the factors hypothesized. In contrast to the existing literature on industrial countries, we show that the relative gasoline tax incidence may be progressive in Mexico and, more generally, in LDCs.
by Arturo Antón-Sarabia, , Fausto Hernández-Trillo both of Centro de Investigación y Docencia Económicas (CIDE), Carretera México Toluca 3655, México DF 01210, Mexico
Available online 21 December 2013
Keywords: Gasoline tax; Gasoline subsidy; Tax incidence