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The Effects of Gasoline Differential Taxation on Automobile Demand (Efectos Del Diferencial De Impuestos a Las Gasolinas En La Demanda De Automóviles)

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Document pages: 17 pages

Abstract: The gasoline tax policy in Chile has always kept lower tax rates for gasoline relative to diesel. As a result, the share of diesel cars has been systematically growing, especially over the last 5 years. Given that, on average, 20 of diesel engine emissions are equivalent to 80 of gasoline engine emissions, the increase in diesel cars has impacts on the magnitude of negative externalities associated to cars use. In the case of cities like Santiago, with high levels of pollution, the impact might be large and important. In this paper I estimate the effect of the differential tax rates between diesel and gasoline on the automobile demand in Chile. The results show diesel cars demand elasticities of 3.4 and 2.1 with respect to price and the difference in tax rate respectively. The magnitude of the elasticities show that a change in tax policy, towards equalizing diesel and gasoline tax rates and enacting a diesel car tax, would have a large impact in terms of reducing emissions and pollution in Chile.

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