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Fuel tax incidence and supply conditions


  • Marion, Justin
  • Muehlegger, Erich


The incidence of taxes on consumers and producers plays a central role in evaluating energy tax policy, yet the literature testing the main predictions of the tax incidence model is sparse. In this paper, we examine the pass-through rate of state gasoline and diesel taxes to retail prices, and importantly we estimate the dependence of pass-through on factors constraining the gasoline and diesel supply chains. We consider several factors that alter the elasticity of supply, including within state heterogeneity in gasoline content requirements, refinery capacity utilization, inventory constraints, and variation in the demand for untaxed uses of diesel. In general, we find that in periods of time when the supply chain is constrained, and the constraint is plausibly unrelated to shifts in demand, the pass-through rate of fuel taxes declines. We describe several potential implications for tax policy, including tax breaks during peak driving season and during times of supply disruptions such as after major hurricanes.

Suggested Citation

  • Marion, Justin & Muehlegger, Erich, 2011. "Fuel tax incidence and supply conditions," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1202-1212, October.
  • Handle: RePEc:eee:pubeco:v:95:y:2011:i:9-10:p:1202-1212

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    References listed on IDEAS

    1. Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
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    4. Chouinard, Hayley & Perloff, Jeffrey M., 2004. "Incidence of federal and state gasoline taxes," Economics Letters, Elsevier, vol. 83(1), pages 55-60, April.
    5. Doyle Jr., Joseph J. & Samphantharak, Krislert, 2008. "$2.00 Gas! Studying the effects of a gas tax moratorium," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 869-884, April.
    6. Hamilton, Stephen F., 1999. "Tax incidence under oligopoly: a comparison of policy approaches," Journal of Public Economics, Elsevier, vol. 71(2), pages 233-245, February.
    7. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
    8. repec:cdl:agrebk:5335 is not listed on IDEAS
    9. Erich J. Muehlegger, 2004. "Gasoline Price Spikes and Regional Gasoline Content Regulations - A Structural Approach," Working Papers 0421, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    10. Chernick, Howard & Reschovsky, Andrew, 1997. "Who Pays the Gasoline Tax?," National Tax Journal, National Tax Association, vol. 50(2), pages 233-59, June.
    11. Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 451-479, April.
    12. Chernick, Howard & Reschovsky, Andrew, 1997. "Who Pays the Gasoline Tax?," National Tax Journal, National Tax Association, vol. 50(2), pages 233-259, June.
    13. Christopher Decker & Mark Wohar, 2007. "Determinants of state diesel fuel excise tax rates: the political economy of fuel taxation in the United States," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 41(1), pages 171-188, March.
    14. Justin Marion & Erich Muehlegger, 2008. "Measuring Illegal Activity and the Effects of Regulatory Innovation: Tax Evasion and the Dyeing of Untaxed Diesel," Journal of Political Economy, University of Chicago Press, vol. 116(4), pages 633-666, August.
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    More about this item


    Tax incidence Gasoline Fuel supply;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy


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