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