Abstract
This paper provides an empirical study of energy taxes for achieving environmental and fiscal policy objectives. Based on an energy tax structured like Clinton’s 1993 BTU tax proposal, we demonstrate that the optimal tax will be higher the greater the environmental costs associated with energy consumption and the larger the economic distortions associated with alternative revenue-raising policies. Greater environmental damages and higher revenue-raising costs also have a fiscal policy implication; they shift the least-cost tax mix for raising additional revenue toward energy taxes and away from conventional tax alternatives.