Estimates of the price elasticity of demand for auto driving

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Reference no: EM13815200

Federal excise taxes on gasoline vary widely across the developed world. The United States has the lowest taxes at USD $0.40 per gallon (or L0.07 per litter), Canada has taxes of $0.60 per gallon, Japan and much of Europe is $2.00 per gallon, while Britain has the highest tax at $2.83 a gallon or L0.5 per liter. If gasoline taxes are intended to reduce the time losses from road congestion in urban environments and gasoline pre-tax costs about L0.40 per litter, why might the optimal tax in Canada be 50 percent higher than in the United States? What would be an explanation for why adjacent countries would have such different estimates of the price elasticity of demand for auto driving?

Reference no: EM13815200

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