Discussion Paper

Should Fuel Taxes Be Scrapped in Favor of Per-Mile Charges?

Aug 11, 2005 | Ian W.H. Parry


This paper discusses the appropriate balance between traditional gasoline taxes and charging bythe mile, focusing mainly on economic efficiency considerations. We begin with a brief discussion of thefive major passenger vehicle externalities of concern - local pollution, greenhouse warming, oildependency, traffic congestion, and traffic accidents - summarizing evidence on the dollar value of theexternalities for passenger vehicles in the United States. We then discuss how much fuel taxation mightbe justified to account for these externalities, as well as how much taxation might be appropriate on fiscalgrounds, assuming per-mile charges are unavailable. Finally, we discuss to what extent fuel taxationshould be replaced with per-mile charges.