CIAO DATE: 11/2012
July 2012
Belfer Center for Science and International Affairs, Harvard University
The gasoline tax is an important policy tool to control externalities associated with automobile use, to reduce dependency on oil imports, and to raise government revenue. Automobile use imposes externalities including local air pollution, carbon dioxide emissions, traffic accidents, and traffic congestion. Although the gasoline tax is not the theoretically optimal tax for all of these externalities, a single tax avoids the need for multiple instruments and offers an administratively simple way to control these externalities at the same time. Besides correcting environmental externalities, the gasoline tax can reduce gasoline consumption and may mitigate concerns about the sensitivity of the U.S. economy to oil price volatility, constraints on foreign policy, and other military and geopolitical costs. Moreover, gasoline taxes at the federal and state levels are major funding sources for building and maintaining transportation infrastructure. Growing concerns over climate change, air pollution, energy security, the national budget deficit, and insolvency of the Highway Trust Fund have brought renewed interests in increasing state and federal gasoline taxes. Understanding how gasoline tax changes affect automobile use and gasoline consumption is crucial in effectively leveraging this instrument to achieve these policy goals. An underlying assumption used in previous policy analysis on the effectiveness of higher gasoline taxes and the optimal gasoline tax is that consumers react to gasoline tax changes similarly to gasoline price changes. Consequently, the consumer response to oil-price induced changes in gasoline prices is often used as a proxy for the response to a commensurate change in the gasoline
Resource link: Gasoline Taxes and Consumer Behavior [PDF] - 1.9M