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Gasoline Taxes and Consumer Behavior

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  • Li, Shanjun

    (Cornell University)

  • Linn, Joshua

    (Resources for the Future, Washington, DC)

  • Muehlegger, Erich

    (Harvard University)

Abstract

Gasoline taxes can be employed to correct externalities associated with automobile use, to reduce dependency on foreign oil, and to raise government revenue. Our understanding of the optimal gasoline tax and the efficacy of existing taxes is largely based on empirical analysis of consumer responses to gasoline price changes. In this paper, we directly examine how gasoline taxes affect consumer behavior as distinct from tax-exclusive gasoline prices. Our analysis shows that a 5-cent tax increase reduces gasoline consumption by 1.3 percent in the short-run, much larger than that from a 5-cent increase in the tax-exclusive gasoline price. This difference suggests that traditional analysis could significantly underestimate policy impacts of tax changes. We further investigate the differential effect from gasoline taxes and tax-exclusive gasoline prices on both the intensive and extensive margins of gasoline consumption. We discuss implications of our findings for the estimation of the implicit discount rate for vehicle purchases and for the fiscal benefits of raising taxes.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp12-006.

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Date of creation: Feb 2012
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Handle: RePEc:ecl:harjfk:rwp12-006

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. About the strange response of consumers to gas tax increases
    by Economic Logician in Economic Logic on 2012-03-22 15:12:00
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Cited by:
  1. Nicholas Rivers & Brandon Schaufele, 2012. "Carbon Tax Salience and Gasoline Demand," Working Papers 1211E, University of Ottawa, Department of Economics.
  2. Linn, Joshua, 2013. "The Rebound Effect for Passenger Vehicles," Discussion Papers dp-13-19, Resources For the Future.
  3. Timothy Welch & Sabyasachee Mishra, 2014. "Envisioning an emission diet: application of travel demand mechanisms to facilitate policy decision making," Transportation, Springer, vol. 41(3), pages 611-631, May.
  4. Baranzini, Andrea & Weber, Sylvain, 2013. "Elasticities of gasoline demand in Switzerland," Energy Policy, Elsevier, vol. 63(C), pages 674-680.
  5. Maksim Belenkiy & Stefan Osborne, 2012. "The Effect of Changes in World Crude Oil Prices on U.S. Automobile Exports," International Journal of Energy Economics and Policy, Econjournals, vol. 2(3), pages 147-158.
  6. Scott, K. Rebecca, 2013. "Demand and Price Uncertainty: Rational Habits in International Gasoline Demand," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt25q4w08n, Department of Agricultural & Resource Economics, UC Berkeley.
  7. Thomas Klier & Joshua Linn, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," Working Papers 1117, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  8. Linn, Joshua, 2014. "Explaining the Adoption of Diesel Fuel Passenger Cars in Europe," Discussion Papers dp-14-08, Resources For the Future.
  9. Anderson, Soren T. & Kellogg, Ryan & Sallee, James M., 2013. "What do consumers believe about future gasoline prices?," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 383-403.
  10. Marius Ley & Tobias Stucki & Martin W├Ârter, 2013. "The Impact of Energy Prices on Green Innovation," KOF Working papers 13-340, KOF Swiss Economic Institute, ETH Zurich.

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