Comments

Summary

Introduction

Ian Parry's excellent chapter provides a valuable, highly relevant, and up-to-date assessment of the efficiency-maximizing level of gasoline and diesel fuel taxes in the United States. In doing so, it builds on work by Parry and Small (2005), which makes an even larger contribution. That earlier paper provided a careful and thorough synthesis of the literature on vehicle-related externalities, together with clear analytics on how the various externalities combine to determine the optimal gasoline tax rate (which is not simply equal to the sum of the various externalities). Parry's chapter in this volume builds on that earlier research in two respects: it updates the analysis, incorporating both the changes that have occurred over the last five years and the new research that has been done during that time; and second, it extends that same approach to consider diesel fuel use by heavy trucks.

In my comments, I will begin by reviewing what I see as the key elements of the chapter's analysis and try to provide additional intuition for the key results. In doing so, I will point out one conclusion that I think is underemphasized in Parry's chapter, which is that the gas tax isn't the best policy for addressing vehicle-related externalities: a tax on miles driven would be more efficient, and a combination of several policies could be more efficient still. I will draw out a few other implications of the analysis.