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Is It Time to Raise the Gas Tax? Optimal Gasoline Taxes for Ontario and Toronto

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  • Joel Wood

Abstract

This article uses a representative agent model and Canadian data to calculate the optimal gasoline taxes for Ontario and the Greater Toronto-Hamilton Area (GTHA) in a second-best setting with pre-existing distortionary income taxes. The results suggest a second-best optimal gasoline tax of 40.57 cents per litre in 2006 Canadian dollars for the GTHA that is much higher than the current tax rate of 24.7 cents per litre, and also higher than recently proposed increases. The resulting value is insensitive to whether the additional revenue is used to reduce taxes on income or to incrementally fund increased public transit infrastructure (the Big Move plan). However, in the absence of a regional tax, the second-best optimal gasoline tax for Ontario as a whole of 28.51 cents per litre in 2006 Canadian dollars is slightly higher than the current tax rate and in line with proposed increases.

Suggested Citation

  • Joel Wood, 2015. "Is It Time to Raise the Gas Tax? Optimal Gasoline Taxes for Ontario and Toronto," Canadian Public Policy, University of Toronto Press, vol. 41(3), pages 179-190, September.
    • Handle: RePEc:cpp:issued:v:41:y:2015:i:3:p:179-190
    DOI: 10.3138/cpp.2015-011
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    Cited by:

    1. Mariana Conte Grand & Alejandro Rasteletti, 2021. "Pérdidas de bienestar por imposición subóptima en los impuestos a las gasolinas en América Latina y el Caribe," CEMA Working Papers: Serie Documentos de Trabajo. 821, Universidad del CEMA.
    2. Beck, Marisa & Rivers, Nicholas & Wigle, Randall, 2018. "How do learning externalities influence the evaluation of Ontario's renewables support policies?," Energy Policy, Elsevier, vol. 117(C), pages 86-99.
    3. Beaudoin, Justin & Chen, Yuan & Heres, David R. & Kheiravar, Khaled H. & Lade, Gabriel E. & Yi, Fujin & Zhang, Wei & Lin Lawell, C.-Y. Cynthia, 2018. "Environmental Policies in the Transportation Sector: Taxes, Subsidies, Mandates, Restrictions, and Investment," ISU General Staff Papers 201808150700001050, Iowa State University, Department of Economics.
    4. Randall Wigle, 2019. "The Economic Case for EV Supports? Or: Network Effects, EV Pessimism and EV Supports," LCERPA Working Papers ec0123, Laurier Centre for Economic Research and Policy Analysis, revised 23 Oct 2019.

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