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How Far for a Buck? Tax Differences and the Location of Retail Gasoline Activity in Southeast Chicagoland

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  • Mark D. Manuszak

    (Federal Reserve Board of Governors)

  • Charles C. Moul

    (Miami University)

Abstract

We exploit variation in gasoline and cigarettes taxes in adjacent political jurisdictions for northern Illinois and Indiana to examine consumers' trade-off between prices and travel. We develop a model that relates activity in the retail gasoline industry around the tax borders to consumer locations. Our results indicate that the willingness of a typical Chicagoland consumer to travel an additional mile to buy gasoline corresponds to about $0.065 to $0.084 per gallon. According to our estimates, the observed area of Chicago, the jurisdiction with the highest taxes, is missing approximately 40% of the capacity that would exist were taxes equalized. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Mark D. Manuszak & Charles C. Moul, 2009. "How Far for a Buck? Tax Differences and the Location of Retail Gasoline Activity in Southeast Chicagoland," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 744-765, November.
    • Handle: RePEc:tpr:restat:v:91:y:2009:i:4:p:744-765
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