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What Drives Gasoline Prices?

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  • Fay Dunkerley

    ()
    (Center for Economic Studies, KULeuven)

  • Amihai Glazer

    ()
    (Department of Economics, University of California-Irvine)

  • Stef Proost

    ()
    (Center for Economic Studies, KULeuven)

Abstract

Gasoline taxes are the most important tax on car use. The question naturally arises as to what tax would be adopted by a government that responds to the preferences of the public. To address that issue, we begin with the standard Downsian model, where policy is determined by the median voter. This model predicts that as long as the median voter is not a car user, he wants high taxes on road use and a road capacity that maximizes net tax revenues. When he becomes a driver himself, he wants road user taxes that are lower and only increase to control congestion, as well as more road capacity. We then use panel data for 28 countries and find support for our theory. When the median voter becomes a driver, the gasoline tax drops on average by 20%.

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Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 091005.

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Length: 31 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:irv:wpaper:091005

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Keywords: Gasoline taxes; Median voter theory; Political economy;

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