Abstract
This study estimates the optimal aviation gasoline tax for U.S. general aviation that takes into account the accident, lead pollution, and greenhouse gas emission externalities, as well as the balance between excise taxes and labor taxes to finance government spending. The calculated optimal tax rate is $3.60gal−1, which is over 18 times greater than the current tax rate and 5 times greater than the Federal Aviation Administration proposed tax rate. The Pigovian component is $0.89, and we observe that the accident externality is taxed more severely than the pollution externality. The largest component of the optimal tax rate is the Ramsey component at $2.70, which reflects the ability of the government to raise revenue from a price inelastic good like aviation gasoline. The optimal tax is estimated to reduce lead emissions by 9%, greenhouse gas emissions by approximately 18% and accidents by 17%.
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