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The Incidence of Fuel-Price Shocks and Tax Holidays: Evidence from the 2026 Oil Shock

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Abstract

We measure the distributional incidence of U.S. motor-fuel tax holidays using transaction records from ∼13,200 gasoline stations linked to neighborhood income. The 2026 Iran War raised gasoline expenditure shares 2.9 times more in the lowest- than highest-income census tracts. Pre-shock exposure accounts for 89% of the gap while the residual heterogeneity widens rather than offsets it. State-level tax holiday lowered retail prices but offset the same fraction (28%) of the per-gallon burden across quintiles. A counterfactual federal holiday preserves this incidence. Per-gallon relief is burden-proportional as it attenuates the shock’s level without correcting its regressive income gradient.

Suggested Citation

  • Jacob T. Bradt & Reid Taylor, 2026. "The Incidence of Fuel-Price Shocks and Tax Holidays: Evidence from the 2026 Oil Shock," Working Papers 2624, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:103622
    DOI: 10.24149/wp2624
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    Keywords

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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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