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Optimal Car-related Taxes and Pricing in Beijing Considering the Marginal Cost of Public Funds

Yoshida, Jun and Kono, Tatsuhito (2020): Optimal Car-related Taxes and Pricing in Beijing Considering the Marginal Cost of Public Funds.

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Abstract

This paper optimizes fuel tax, car ownership tax, highway tolls, and peak-time area pricing in Beijing with explicit consideration of marginal costs of public funds arising from these taxes and pricing. We establish two scenarios: scenario 1 optimizes the two taxes, tolls, and area pricing simultaneously; scenario 2 optimizes the two taxes and tolls without area pricing. Using Beijing’s parameters obtained from previous studies, our calculation results show that 1) the optimal area pricing is 50 CNY/entry; 2) Scenario 1 reduces the number of cars in peak time by more than 50%, but scenario 2 reduces it by 10%; 3) regardless of area pricing, fuel tax should be higher and car ownership tax lower. We do some sensitivity analyses to demonstrate the possible ranges of the tax and pricing instruments.

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