The Second-Best Optimal Gasoline Tax for the Greater Toronto-Hamilton Area

This paper uses a representative agent model and Canadian data to calculate the optimal gasoline taxes for Ontario and the Greater Toronto-Hamilton Area (GTHA) in a second-best setting with pre-existing distortionary income taxes. The results suggest a second-best optimal gasoline tax (40.57 cents per litre in 2006 Canadian dollars) for the GTHA that is much higher than the current tax rate (24.7 cents per litre), and also higher than recently...