Discussion Paper

International Fuel Tax Assessment: An Application to Chile

Feb 3, 2010 | Ian W.H. Parry, Jon Strand

Abstract

Most developed and developing country governments levy taxes on gasoline and diesel fuel used by motor vehicles. However, outside of the United States and Europe, automobile and heavy truckexternalities have not been quantified, so policymakers have little guidance on whether prevailing tax rates are anywhere close to their corrective levels. This paper develops a general approach for roughlygauging the magnitude of motor vehicle externalities, and hence the corrective tax on gasoline and diesel, for individual countries, based on pooling local data sources with extrapolations from U.S. data. The analysis is illustrated for the case of Chile, though it could be readily applied to other countries with appropriate data collection.