Saturday, December 6, 2008

Forward Thinking

An interesting article on Marketwatch.com provides an interesting example of forward-thinking. China is upping its fuel taxes substantially - at a time when the economy is slowing down. Why? China is taking advantage of falling fuel prices to offset the increase that the tax would represent, making it easier for consumers to adjust both now and later should fuel prices rebound. (Everyone who thinks fuel prices won't rebound within the next twelve to twenty-four months, raise your hand.) And rather than depend on falling fuel prices to mitigate the tax bump, China is dropping some transportation fees.

According to the article, the goal is to encourage conservation and assist in restructuring (of the fuel market and energy use, one presumes).

This is an excellent example of how different governments can use fiscal policy to influence behavior for the long-run. It also shows how world market conditions offer opportunities to price commodities in such a way as to begin the move toward substitutes and alternative energy, and hopefully reduce waste - to "internalize the externalities" as one of my old professors used to say.

I look forward to your comments.

1 comment:

Kelly McLaughlin said...

Tim-
I think that it is great that China is doing this. It will help people adjust, like you said. Lowering transportation fees will definitely help conserve fuel and energy. China is doing the right thing.