The Linkage Mechanisms between Gas Price and the Taxi Fare in China

As the price of gas contributes to the cost of providing taxi service, the fuel price should be a component of the fare. However, should the fare rise together with the gas price? The government and the public may not agree. Even if the fare is adjusted, the range and method of adjustment need to be examined. The authors suggest that local governments promote the use of fuel-efficient cars and gas substitutes to reduce the financial burden on the taxi company and the driver and to save consumer expenditures and to promote a cleaner city environment. Besides energy substitution, the taxi company and the driver should look to cut down on their costs rather than seeking to raise fares. The eventual adjustment should be less than the rise in gas price with contributions from every party concerned. This paper is based on analysis of the Shanghai and Hunan price linkage mechanisms in the taxi industry.