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What Drives Gasoline Prices?

Author

Listed:
  • Fay Dunkerley

    () (Center for Economic Studies, KULeuven)

  • Amihai Glazer

    () (Department of Economics, University of California-Irvine)

  • Stef Proost

    () (Center for Economic Studies, KULeuven)

Abstract

Gasoline taxes are the most important tax on car use. The question naturally arises as to what tax would be adopted by a government that responds to the preferences of the public. To address that issue, we begin with the standard Downsian model, where policy is determined by the median voter. This model predicts that as long as the median voter is not a car user, he wants high taxes on road use and a road capacity that maximizes net tax revenues. When he becomes a driver himself, he wants road user taxes that are lower and only increase to control congestion, as well as more road capacity. We then use panel data for 28 countries and find support for our theory. When the median voter becomes a driver, the gasoline tax drops on average by 20%.

Suggested Citation

  • Fay Dunkerley & Amihai Glazer & Stef Proost, 2010. "What Drives Gasoline Prices?," Working Papers 091005, University of California-Irvine, Department of Economics.
  • Handle: RePEc:irv:wpaper:091005
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    References listed on IDEAS

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    More about this item

    Keywords

    Gasoline taxes; Median voter theory; Political economy;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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