$2.00 Gas! Studying the Effects of a Gas Tax Moratorium
AbstractThere are surprisingly few estimates of the effect of sales taxes on retail prices, especially at the firm level. Further, along both sides of a state border, a change in one state%u2019s sales tax can shed light on the nature of competition, as a subset of firms effectively experiences a change in its marginal cost. This paper considers the suspension, and subsequent reinstatement, of the 5% gasoline sales tax in Illinois and Indiana following a temporary price spike in the spring of 2000. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily, gas station-level data, retail gas prices are found to drop by 3% following the suspension, and increase by 4% following the reinstatements. After linking the stations to driving distance data, some evidence suggests that the tax increases are associated with higher prices up to an hour%u2019s drive into neighboring states.
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Date of creation: May 2006
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Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-10 (All new papers)
- NEP-ENE-2006-06-10 (Energy Economics)
- NEP-PBE-2006-06-10 (Public Economics)
- NEP-PUB-2006-06-10 (Public Finance)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Iâ??m not an Economist who supports a gas tax reduction, but one theory how it could help.
by Seth Gitter in the blog of diminishing returns on 2008-05-07 01:07:00
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