Optimal Gasoline Taxes and the Elasticity of Demand for Gasoline

Gasoline-powered passenger vehicles create numerous negative externalities, including local air pollution, global climate change, accidents, congestion, and dependence on foreign oil. These externalities can be addressed by policymakers through a variety of actions aimed at reducing demand for gasoline or reducing pollution from automobiles. While it has been argued that a gasoline tax is second-best as a corrective measure for each of these externalities separately, it is perhaps the best policy to jointly address these, due to the cost and difficulty of simultaneously implementing several first-best policies. A key parameter in the estimation of gasoline demand and in calculating the optimal gasoline tax is the price elasticity of demand, which measures the percent change in gasoline demand for a percent change in gasoline price. It is a measure of how responsive consumers are to changes in the price of gasoline. The higher the elasticity in magnitude, the more consumers will decrease gasoline consumption in response to an increase in gasoline price. For this project, the researchers propose to estimate and analyze the elasticity of demand for gasoline, and to calculate the optimal gasoline tax for various regions of the world, including the U.S., China, and Latin America.


    • English


    • Status: Active
    • Contract Numbers:



    • Sponsor Organizations:

      California Department of Transportation

      1227 O Street
      Sacramento, CA  United States  95843
    • Performing Organizations:

      Sustainable Transportation Center/ITS-Davis

      University of California, Davis
      Davis, CA  United States  95616
    • Principal Investigators:

      Lin, Cynthia

    • Start Date: 20111001
    • Expected Completion Date: 0
    • Actual Completion Date: 20120930
    • Source Data: RiP Project 32354

    Subject/Index Terms

    Filing Info

    • Accession Number: 01466954
    • Record Type: Research project
    • Source Agency: University of California Transportation Center/Institute of Transportation Studies
    • Contract Numbers: DTRT06-G-0022, R06-1
    • Files: UTC, RiP, STATEDOT
    • Created Date: Jan 3 2013 3:25PM