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Mrs. Poonam Gupta and Mr. Walter Mahler
The domestic taxation of petroleum products is an important source of revenue in most countries. However, there is a wide variation of tax rates on petroleum products across countries, which cannot be explained by economic theory alone. This paper surveys different considerations advanced for taxing petroleum and presents petroleum tax rate data in 120 countries. It concludes that a significant reduction in the present extremely wide variation in petroleum prices and tax rates appears warranted.
Mr. Carlos M. Asilis and Luis Rivera-Batiz

This paper presents a geographical theory of location and interregional trade. Location is treated as an endogenous variable by firms, consumers and perfectly mobile workers in a two-sector economy. Space plays a central role owing to transportation costs, market access, and distance from polluting industrial centers. The model is used to examine: (1) aspects of a compensating-differential theory of regional unevenness, (2) the theoretical formulation of a gravity theory of trade patterns, (3) the geographic basis for industrial and environmental policy, and (4) the interaction between reductions in transportation costs, location patterns, and technological improvements.

CARTER BRANDON

that Asia has some of the dirtiest fuels in the world—although this is changing in Southeast Asia. The resultant health and productivity effects of pollution cost billions of dollars a year in the large Asian cities. For example, the annual cost of air pollution is estimated at $1.3-3.1 billion in Bangkok, $1.0-1.6 billion in Kuala Lumpur, and $400-800 million in Jakarta. These figures include the costs assigned to mortality and morbidity. (Additional losses due to congestion, such as fuel spent, time wasted, and production delayed, are not included but would add

Ian W.H. Parry and Mr. Jon Strand

) provides detailed local evidence on pollution-health impacts for Santiago. This study is in turn based on a Chilean study, Cifuentes (2001) , of mortality and morbidity related to PM and ozone exposure in Santiago in the late 1990s. Using that study, we compute damage estimates of $0.06 per mile ( Appendix II ). Weighting damages for Santiago and the rest of the country by the respective mileage shares (assumed to be the same as the fuel consumption shares) gives a nationwide pollution cost of $0.03 per mile for Chile. As noted above, we apportion two-thirds of this

Ian W.H. Parry and Mr. Jon Strand
Gasoline and diesel fuel are heavily taxed in many developed and some emerging and developing countries. Outside of the United States and Europe, however, there has been little attempt to quantify the external costs of vehicle use, so policymakers lack guidance on whether prevailing tax rates are economically efficient. This paper develops a general approach for estimating motor vehicle externalities, and hence corrective taxes on gasoline and diesel, based on pooling local data with extrapolations from U.S.evidence. The analysis is illustrated for the case of Chile, though it could be applied to other countries.
Mr. Jiaqian Chen, Maksym Chepeliev, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Mr. James Roaf, Ms. Anna Shabunina, Dominique van der Mensbrugghe, and Mr. Philippe Wingender

and emissions by energy sector for 135 countries, and estimates the impact of carbon mitigation policies on emissions, the fiscal accounts, and economic welfare. 1 The welfare gain is the difference between the domestic environmental co-benefits and the economic efficiency costs of mitigation policies, as measured by changes in consumer and producer surplus in fossil fuel markets (accounting for preexisting fuel taxes). 2 The pollution cost estimates from stationary sources are built up through estimates of plant-level “intake fractions” (that is, the fraction of

Mr. David Coady, Ian W.H. Parry, Nghia-Piotr Le, and Baoping Shang

, chronic obstructive pulmonary disease, ischemic heart disease, and lung cancer by 15, 5, 8, and 7 percent respectively. Some new research suggests that mortality may be dramatically more responsive to PM2.5 exposure than previously thought—hence our air pollution cost estimates might be quite conservative—though our preference is not to use this new information until it becomes the consensus estimate in the health literature. 25 Combining the first three factors gives estimates of the mortality impacts per ton of direct PM2.5, SO2 and NOx. The fourth factor is the

Mr. David Coady, Ian W.H. Parry, Nghia-Piotr Le, and Baoping Shang
This paper updates estimates of fossil fuel subsidies, defined as fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations), for 191 countries. Globally, subsidies remained large at $4.7 trillion (6.3 percent of global GDP) in 2015 and are projected at $5.2 trillion (6.5 percent of GDP) in 2017. The largest subsidizers in 2015 were China ($1.4 trillion), United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies. Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.
Mr. Jiaqian Chen, Maksym Chepeliev, Mr. Daniel Garcia-Macia, Ms. Dora M Iakova, Mr. James Roaf, Ms. Anna Shabunina, Dominique van der Mensbrugghe, and Mr. Philippe Wingender
This paper aims to contribute to the debate on the choice of policies to reach the more ambitious 2030 emission reduction goals currently under consideration. It provides an analysis of the macroeconomic and distributional impacts of different options to scale up the mitigation effort, and proposes enhancements to the existing EU policies. A key finding is that a well-designed package, consisting of more extensive carbon pricing across EU countries and sectors, combined with cuts in distortionary taxes and targeted green investment support, would allow the EU to reach the emission goals with practically no effects on aggregate income. To enhance the social and political acceptance of climate policies, part of the revenue from carbon pricing should be used to compensate the most vulnerable households and to support the transition of workers to greener jobs. A carbon border adjustment mechanism could complement the package to avoid an increase in emissions outside the EU due to higher carbon prices in the EU (“carbon leakage”). From a risk-reward perspective, the benefits of reducing the risk of extreme life-threatening climate events and the health benefits from lower air pollution clearly outweigh the costs of mitigation policies.
International Monetary Fund. External Relations Dept.
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