Abstract: Fuel tax has been increasingly a major concern. in China. To solve the dilemma fuel tax policy, the determination of fuel tax rate is on the top of list. Up to now, there is no quantitative analysis of fuel tax in China. This paper establishes a computable general equilibrium model and uses optimization to find the best fuel tax rate that both makes no affects on the production and increases the social welfare level. Meantime, the paper describes the influence of fuel tax on balanced input and the consumption. Finally, the paper derives appropriate fuel tax rate is good to social welfare.

Key words: Fuel tax, CGE, Welfare Analysis