By Arnold Kling
In the September American Economic Review, Ian W. H. Parry and Kenneth A. Small write,
The British government has defended high gasoline taxes on three main grounds. First, by penalizing gasoline consumption, such taxes reduce the emissions of both carbon dioxide and local air pollutants. Second, gasoline taxes raise the cost of driving and therefore indirectly reduce traffic congestion and traffic-related accidents. Third, gasoline taxes provide significant government revenue: in the UK, motor fuel revenue is nearly one-fourth as large as the entire revenue from personal income taxes
…under our benchmark parameter assumptions the optimal gasoline tax in the US is $1.01/gal (more than twice the current rate) and in the UK is $1.34/gal (less than half the current rate)
This will comfort Charles Krauthammer, who wants to raise gasoline taxes to punish the wicked Saudis and Iranians. As I pointed out in Oil Econ 101, energy conservation is a futile gesture in the war on terrorism. However, the Parry-Small paper does not assume any benefits of that sort.
From my perspective, with the Washington DC area one of the three worst regions in the country for traffic, the anti-congestion motivation for taxing gasoline is worth considering. On the other hand, I think that taxing congestion-causing behavior directly may be a better approach.
Consider the EZ pass system that collects tolls from cars automatically as they go through toll booths. Within a few years, my guess is that it would be easy to adapt this to create toll lanes on existing roads, and to adjust tolls for crowding. This sort of smart toll system might relieve congestion in a more targeted manner.