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The Optimal Gas Tax for California

C.-Y. Cynthia Lin Lawell () and Lea Prince

Institute of Transportation Studies, Working Paper Series from Institute of Transportation Studies, UC Davis

Abstract: This paper calculates the optimal gasoline tax for the state of California. According to our analysis, the optimal gasoline tax in California is $1.37/gallon, which is over 3 times the current California tax when excluding sales taxes. The Pigovian tax is the largest part of this tax, comprising $0.85/gallon. Of this, the congestion externality is taxed the most heavily, at $0.27, followed by oil security, accident externalities, local air pollution, and finally global climate change. The other major component, a Ramsey tax, comprises a full $0.52 of this tax, reflecting the efficiency in raising revenues from a tax on gasoline consumption due to the inelastic demand of this consumption good.

Keywords: UCD-ITS-RP-10-03; Business (search for similar items in EconPapers)
Date: 2010-01-01
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Journal Article: The optimal gas tax for California (2009) Downloads
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