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Incidence and Avoidance Effects of Spatial Fuel Tax Differentials: Evidence using Regional Tax Variation in Spain

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  • Ander Iraizoz

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • José M Labeaga

    (UNED - Universidad Estatal a Distancia)

Abstract

In this paper, we study the effect of spatial tax differentials on fuel tax pass-though and sales responses. We use two-way fixed effects methods to exploit regional variation in diesel excise taxes in Spain. Using a dataset containing daily diesel prices for the universe of petrol stations in Spain, we find that diesel tax pass-through is asymmetric depending on the sign of tax differentials with bordering regions. Petrol stations bordering with lower tax regions pass-through only 56% of fuel taxes, petrol stations bordering with higher tax regions pass-through 120% of fuel taxes. We provide evidence to attribute the asymmetric spatial incidence of fuel taxes to the market power given by the competitive tax advantage relative to competitors. Furthermore, we use diesel sales data aggregated at the province level and we find significant spatial tax avoidance responses to regional fuel tax differentials.

Suggested Citation

  • Ander Iraizoz & José M Labeaga, 2022. "Incidence and Avoidance Effects of Spatial Fuel Tax Differentials: Evidence using Regional Tax Variation in Spain," Working Papers halshs-03789430, HAL.
    • Handle: RePEc:hal:wpaper:halshs-03789430
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03789430
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    Keywords

    Automotive Fuel; Tax Incidence; Spatial Avoidance;
    All these keywords.

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