This paper will concentrate on the price and the income elasticity for gasoline in the state of China. It is appropriate to understand the connections among the gasoline price, the gasoline demand and the non-refundable income as this knowledge will help in the evaluation and examination of the effectiveness of China’s tax transformation. The tax transformation focuses on decreasing the gasoline consumption due to its hazardous impacts such as pollution and global warming and it has various useful implications for the energy statue in consideration (Jiang & Zemin, 103).
Even though the domestic fuel prices in China undergo regulation by the government through the responsible department, the prices are always revised quite often in accordance with the world oil prices and due to that, the diesel prices and the gasoline prices tend to follow or rather comply with the world oil prices. The price of gasoline was first moderated in the year 1993, and then in 1994, 1998, 2003 and in 2009 with the implementation of many transformations. In general, the administration or the government usually erects a foundation of price of the crude oil on a non-uniform basis according to the weighted accumulative price change of various international exchanges such as the Minas, the New York, and the Brent.
There are two main oil companies in the State of China namely the China Petrochemical Corporation and the China National Petroleum Corporation are given the mandate to set the ex-plant prices that are the wholesale and retail prices. The two corporations sell to the provincial petroleum companies who in turn forecast the retail service joints. The prices charged at the joints or rather stations are set to mitigate between a rate of 8% band and above and below the set standard prices. Given the price mechanism, the nominal retail gasoline prices increased at a steady rate making the annual growth rate to be approximately 3.