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Revenue raising taxes : general equilibrium evaluation of alternative taxation in U.S. petroleum industries

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  • de Melo, Jaime
  • Stanton, Julie
  • Tarr, David

Abstract

Should the United States increase taxes and tariffs in the energy sector to reduce its federal deficit? This paper uses a twelve sector general equilibrium model to estimate the fiscal effects, and the effects on welfare and employment, of : (i) a 25 percent import tax on imported crude petroleum oil; (ii) a 15 percent excise tax on petroleum products; and (iii) a combination of the two. The excise tax would be the most efficient revenue raising instrument. The 25 percent import tariff would raise US$7.3 billion, while the 15 percent excise tax would raise US$35 billion. Moreover, each dollar raised through a tariff would come at a loss of 25 cents in welfare. Each dollar raised through an excise tax would come at a loss of only one cent in welfare. Acombination of excise taxes, subsidies, and import tariffs would be the least costly way (in terms of welfare) to raise US$20 billion. The optimal tax structure would involve a tariff and a small subsidy on petroleum products to counteract the distortion induced by a tax on oil - the most important input for petroleum products.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 145.

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Date of creation: 28 Feb 1989
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Handle: RePEc:wbk:wbrwps:145

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Keywords: Economic Theory&Research; Oil Refining&Gas Industry; Public Sector Economics&Finance; Energy and Environment; Environmental Economics&Policies;

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  1. Harris, Richard G. & Mackinnon, James G., 1979. "Computing optimal tax equilibria," Journal of Public Economics, Elsevier, vol. 11(2), pages 197-212, March.
  2. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
  3. de Melo, Jaime & Tarr, David, 1990. "Welfare Costs of US Quotas in Textiles, Steel and Autos," CEPR Discussion Papers 401, C.E.P.R. Discussion Papers.
  4. Scarf,Herbert E. & Shoven,John B., 2008. "Applied General Equilibrium Analysis," Cambridge Books, Cambridge University Press, number 9780521070935, April.
  5. Alan S. Manne, 1976. "ETA: A Model for Energy Technology Assessment," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 379-406, Autumn.
  6. Vern Caddy, 1976. "Empirical Estimation of the Elasticity of Substitution : A Review," Centre of Policy Studies/IMPACT Centre Working Papers op-09, Victoria University, Centre of Policy Studies/IMPACT Centre.
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Cited by:
  1. de Melo, Jaime & Tarr, David, 1995. "VERs Under Imperfect Competition and Foreign Direct Investment: A Case Study of the US-Japan Auto VER," CEPR Discussion Papers 1173, C.E.P.R. Discussion Papers.

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