Policy Paper 3: Defying Conventional Wisdom - Distributional Impacts of Fuel Taxes
Fuel taxes for transportation represent one of the most potent and readily available policies to address increasing global greenhouse gas emissions. Yet, they are pilloried by politicians because of their supposedly regressive impacts to the poorest populations.
Research from both OECD and non-OECD countries, however, suggests such arguments are disingenuous and that fuel taxes are often neutral or even progressive in their impacts. Transport fuel taxes function like luxury goods in many countries, particularly low income countries, so tax burdens fall on wealthier individuals rather than poorer ones.
This paper summarizes the findings of a recent book with more than twenty empirical case studies of the effects of fuel taxes for different nations. According to the studies, fuel taxes are strongly progressive throughout Africa and the big Asian countries. In middle income countries in Latin America and in Europe they are often neutral. Tax regressivity in the United States can be corrected with effective revenue use.
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