The Taxation of Motor Fuel: International Comparison

Abstract

We apply the Parry-Small (2005) framework to asses whether the level taxation of motor fuel is broadly appropriate in a group of countries (OECD, BRICs and South Africa) accounting for more than 80 percent of world greenhouse gas (GHG) emissions. This paper deals with emissions from oil combustion in transport, which accounts for about 40 percent of CO2 emissions. In the benchmark specification, we find that six countries (accounting, in turn, for more than 40 percent of motor-fuel GHG world emissions) would be undertaxing motor fuel. We evaluate the sensitivity of the results to the values of the elasticities and externalities that we use. We find that varying the values of these parameters (within the level of uncertainty reasonably associated with them) significantly affects the results. This implies that, while informative, the results must be taken as indicative. Further analysis for a particular country must rely in a well-informed choice for the values of their country-specific parameters