Fuel taxation is used to curb greenhouse gas emissions from fuel combustion because of their potential to contribute to global warming. Public awareness has also recently come that fuel combustion not only generates carbon dioxide emission but also air pollutants. On top of global and local environmental concerns, fuel taxes also obey to traditional efficiency and equity considerations as well as other local traffic-related externalities, e.g., traffic congestion or accidents. We take into account heterogeneity across households preferences and across the external impacts of households fuel consumption. Our paper highlights theoretical circumstances where one can disentangle the various considerations shaping the taxation of externality - generating goods and illustrates on data from France how each of these considerations can be empirically quantified in the specific case of fuel.
