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A Tax to Save the US $100 billion a Year and Solve Global Warming?

Jayanta Sen

University of Maryland, University College

September 1, 2005

The position of the current US administration is that moves to reduce consumption of gas (like the Kyoto Treaty), will harm the US economy. On the contrary I show that a tax on crude would transfer wealth of $100+ billion a year from foreign governments to the US consumers, thus providing a major economic stimulus to the economy while at the same time reducing consumption of gas. Over the past decade crude oil prices have increased from $12 (1998) to over $65 a barrel. The amount of net oil exported by importing countries is about 28 million barrels a day. With 1998 prices as a reference, this translates to an additional wealth transfer of $1.32 billion a day, or $480 billion a year. If the supply of oil is inelastic, then an increase in tax by the governments of importing countries would push up oil prices and decrease the wealth transfer. For a range of demand and supply elasticities that I study, the wealth transfer savings for the United States (which has about one-third of global oil imports) should be in the range of $108 to $152 billion a year. The new tax revenues to the US government from tax on imported oil should be $160 billion to $250 billion a year. This money can be returned to the US consumers as a lump sum, thus providing the economic stimulus. The reduction in crude oil consumption ranges from 7.13% to 10.30% while providing a stimulus (defined as additional purchasing power to consumers) to the economy of $95 billion to $133 billion a year.

Number of Pages in PDF File: 10

Keywords: global warming, trade, deficit, taxes, international, energy

JEL Classification: A10, E60, E61, E62, E63, F13, F40, Q20, Q25, Q28

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Date posted: October 4, 2005  

Suggested Citation

Sen, Jayanta, A Tax to Save the US $100 billion a Year and Solve Global Warming? (September 1, 2005). Available at SSRN: http://ssrn.com/abstract=809466 or http://dx.doi.org/10.2139/ssrn.809466

Contact Information

Jayanta Sen (Contact Author)
University of Maryland, University College ( email )
United States
HOME PAGE: http://www.umuc.edu
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