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$2.00 Gas! Studying the Effects of Gas Tax Moratorium

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Author Info
Joseph J. Doyle, Jr.
Krislert Samphantharak
Abstract

Despite the considerable attention paid to the theory of tax incidence, there are surprisingly few estimates of the pass-through rate of sales taxes on retail prices. This paper estimates the effect of a suspension and subsequent reinstatement of the gasoline sales tax in Illinois and Indiana on retail prices. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily gasoline prices at the station level, retail gas prices are found to drop by 3% following the elimination of the 5% sales tax, and increase by 4% following the reinstatements, compared to neighboring states. Some evidence also suggests that the tax reinstatements are associated with higher prices up to an hour into neighboring states, which provides some evidence on the size of the geographic market for gasoline. Effects across different competitive environments are considered as well.

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0517.

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Date of creation: Dec 2005
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Handle: RePEc:mee:wpaper:0517

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    Other versions:
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  5. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October. [Downloadable!] (restricted)
  6. Hayley Chouinard & Jeffrey Perloff, 2002. "Gasoline Price Differences: Taxes, Pollution Regulations, Mergers, Market Power, and Market Conditions," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 951, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
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  7. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September. [Downloadable!] (restricted)
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  9. Don Fullerton & Gilbert E. Metcalf, 2001. "Tax Incidence," Discussion Papers Series, Department of Economics, Tufts University 0106, Department of Economics, Tufts University. [Downloadable!]
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  10. James Alm & Edward Sennoga & Mark Skidmore, 2005. "Perfect Competition, Spatial Competition, and Tax Incidence in the Retail Gasoline Market," Working Papers 05-09, UW-Whitewater, Department of Economics. [Downloadable!]
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  13. Ashenfelter, Orley & Sullivan, Daniel, 1987. "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 483-98, June. [Downloadable!] (restricted)
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