The price of gasoline in Europe is about three times that in the United States, mainly because the European gas tax is higher than the U.S. gas tax
How would an increase in the gas tax in the United States to the European level change carbon emissions? Would this tax increase bring greater efficiency or would it increase deadweight loss?
Burning gasoline while driving creates carbon emissions. The in-crease in the gas tax increases the cost of driving, which leads to less driv-ing. Consequently raising the gasoline tax leads to less carbon emissions. The case for raising the gasoline tax asserts that the carbon emissions from driving contribute to global warming. These emissions are an external cost, so the marginal social cost of the carbon emissions from driving exceeds the marginal social benefit. The efficient amount of driving automobiles is the amount such that the marginal (social) benefit equals the marginal social cost. Increasing the tax makes the marginal private cost closer to (or, in an ideal world, equal to) the marginal social cost and decreases (potentially eliminates) the deadweight loss.
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