IDEAS home Printed from https://ideas.repec.org/p/mee/wpaper/0517.html
   My bibliography  Save this paper

$2.00 Gas! Studying the Effects of Gas Tax Moratorium

Author

Listed:
  • Joseph J. Doyle, Jr.
  • Krislert Samphantharak

Abstract

Despite the considerable attention paid to the theory of tax incidence, there are surprisingly few estimates of the pass-through rate of sales taxes on retail prices. This paper estimates the effect of a suspension and subsequent reinstatement of the gasoline sales tax in Illinois and Indiana on retail prices. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily gasoline prices at the station level, retail gas prices are found to drop by 3% following the elimination of the 5% sales tax, and increase by 4% following the reinstatements, compared to neighboring states. Some evidence also suggests that the tax reinstatements are associated with higher prices up to an hour into neighboring states, which provides some evidence on the size of the geographic market for gasoline. Effects across different competitive environments are considered as well.

Suggested Citation

  • Joseph J. Doyle, Jr. & Krislert Samphantharak, 2005. "$2.00 Gas! Studying the Effects of Gas Tax Moratorium," Working Papers 0517, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    • Handle: RePEc:mee:wpaper:0517
    as

    Download full text from publisher

    File URL: http://tisiphone.mit.edu/RePEc/mee/wpaper/2005-017.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    2. Severin Boreinstein & Andrea Shepard, 1996. "Dynamic Pricing in Retail Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 429-451, Autumn.
    3. 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.
    4. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    5. Krishna, Aradhna & Slemrod, Joel, 2003. "Behavioral Public Finance: Tax Design As Price Presentation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 189-203, March.
    6. Chouinard, Hayley & Perloff, Jeffrey M., 2004. "Incidence of federal and state gasoline taxes," Economics Letters, Elsevier, vol. 83(1), pages 55-60, April.
    7. P.-L. Dubois & A. Jolibert, 2005. "Le marketing," Post-Print halshs-00095259, HAL.
    8. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(2), pages 165-176, June.
    9. Coats, R. Morris, 1995. "A Note on Estimating Cross-Border Effects of State Cigarette Taxes," National Tax Journal, National Tax Association, vol. 48(4), pages 573-84, December.
    10. Chouinard Hayley H & Perloff Jeffrey M, 2007. "Gasoline Price Differences: Taxes, Pollution Regulations, Mergers, Market Power, and Market Conditions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-28, January.
    11. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, International Association for Energy Economics, vol. 29(1), pages 113-134.
    12. Coats, R. Morris, 1995. "A Note on Estimating Cross-Border Effects of State Cigarette Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(4), pages 573-584, December.
    13. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, International Association for Energy Economics, vol. 29(1), pages 113-134.
    14. Michael D. Noel, 2007. "Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 324-334, May.
    15. Kotlikoff, Laurence J. & Summers, Lawrence H., 1987. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092, Elsevier.
    16. Sumner, Daniel A, 1981. "Measurement of Monopoly Behavior: An Application to the Cigarette Industry," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 1010-1019, October.
    17. James Alm & Edward Sennoga & Mark Skidmore, 2005. "Perfect Competition, Spatial Competition, and Tax Incidence in the Retail Gasoline Market," Working Papers 05-09, UW-Whitewater, Department of Economics.
    18. Robert L. Bishop, 1968. "The Effects of Specific and Ad Valorem Taxes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(2), pages 198-218.
    19. Besley, Timothy J. & Rosen, Harvey S., 1999. "Sales Taxes and Prices: An Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 157-178, June.
    20. Harry Gunnison Brown, 1939. "The Incidence of a General Output or a General Sales Tax," Journal of Political Economy, University of Chicago Press, vol. 47, pages 418-418.
    21. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 305-339.
    22. Ashenfelter, Orley & Sullivan, Daniel, 1987. "Nonparametric Tests of Market Structure: An Application to the Cigarette Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 483-498, June.
    23. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
    24. Michael L. Katz & Harvey S. Rosen, 1985. "Tax Analysis in an Oligopoly Model," Public Finance Review, , vol. 13(1), pages 3-20, January.
    25. Sobel, Russell S & Garrett, Thomas A, 1997. "Taxation and Product Quality: New Evidence from Generic Cigarettes," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 880-887, August.
    26. Donald S. Kenkel, 2005. "Are Alcohol Tax Hikes Fully Passed Through to Prices? Evidence from Alaska," American Economic Review, American Economic Association, vol. 95(2), pages 273-277, May.
    27. 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.
    28. Caballero, Ricardo J., 1999. "Aggregate investment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862, Elsevier.
    29. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-1197, December.
    30. Harry Gunnison Brown, 1939. "The Incidence of a General Output or a General Sales Tax," Journal of Political Economy, University of Chicago Press, vol. 47, pages 254-254.
    31. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 1-54.
    32. Anindya Sen, 2005. "Does Increasing the Market Share of Smaller Firms Result in Lower Prices? Empirical Evidence from the Canadian Retail Gasoline Industry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 26(4), pages 371-389, June.
    33. Chouinard Hayley H & Perloff Jeffrey M, 2007. "Gasoline Price Differences: Taxes, Pollution Regulations, Mergers, Market Power, and Market Conditions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-28, January.
    34. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
    35. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
    36. Stern, Nicholas, 1987. "The effects of taxation, price control and government contracts in oligopoly and monopolistic competition," Journal of Public Economics, Elsevier, vol. 32(2), pages 133-158, March.
    37. Poterba, James M., 1996. "Retail Price Reactions to Changes in State and Local Sales Taxes," National Tax Journal, National Tax Association, vol. 49(2), pages 165-76, June.
    38. Richard Schmalensee & Thomas M. Stoker, 1999. "Household Gasoline Demand in the United States," Econometrica, Econometric Society, vol. 67(3), pages 645-662, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James Alm & Edward Sennoga & Mark Skidmore, 2005. "Perfect Competition, Spatial Competition, and Tax Incidence in the Retail Gasoline Market," Working Papers 05-09, UW-Whitewater, Department of Economics.
    2. James Alm & Edward Sennoga & Mark Skidmore, 2009. "Perfect Competition, Urbanization, And Tax Incidence In The Retail Gasoline Market," Economic Inquiry, Western Economic Association International, vol. 47(1), pages 118-134, January.
    3. Claudio Agostini, 2012. "Incidencia Tributaria en el Mercado de las Gasolinas en Chile," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 27(2), pages 55-73, October.
    4. Delipalla, Sophia & O'Donnell, Owen, 2001. "Estimating tax incidence, market power and market conduct: The European cigarette industry," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 885-908, May.
    5. Yilmazkuday, Hakan, 2017. "Asymmetric incidence of sales taxes: A short-run investigation of gasoline prices," Journal of Economics and Business, Elsevier, vol. 91(C), pages 16-23.
    6. Lesley Chiou & Erich Muehlegger, 2014. "Consumer Response to Cigarette Excise Tax Changes," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 621-650, September.
    7. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872, Elsevier.
    8. Sophia Delipalla & Owen O'Donnell, 1998. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition: Evidence from the European Cigarette Industry," Studies in Economics 9802, School of Economics, University of Kent.
    9. Philip DeCicca & Donald Kenkel & Feng Liu, 2015. "Reservation Prices: An Economic Analysis of Cigarette Purchases on Indian Reservations," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 93-118, March.
    10. Kai A. Konrad & Florian Morath & Wieland Müller, 2014. "Taxation and Market Power," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(1), pages 173-202, February.
    11. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    12. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "The Incidence of Carbon Taxes in U.S. Manufacturing: Lessons from Energy Cost Pass-through," Cowles Foundation Discussion Papers 2038R3, Cowles Foundation for Research in Economics, Yale University, revised Mar 2018.
    13. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2020. "Energy Cost Pass-Through in US Manufacturing: Estimates and Implications for Carbon Taxes," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 303-342, April.
    14. Panayiota Lyssiotou & Elena Savva, 2021. "Who pays taxes on basic foodstuffs? Evidence from broadening the VAT base," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 212-247, February.
    15. Marion, Justin & Muehlegger, Erich, 2011. "Fuel tax incidence and supply conditions," Journal of Public Economics, Elsevier, vol. 95(9), pages 1202-1212.
    16. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
    17. Sharat Ganapati & Joseph S. Shapiro & Reed Walker, 2016. "Energy Prices, Pass-Through, and Incidence in U.S. Manufacturing," Working Papers 16-27, Center for Economic Studies, U.S. Census Bureau.
    18. Harju, Jarkko & Kosonen, Tuomas & Laukkanen, Marita & Palanne, Kimmo, 2022. "The heterogeneous incidence of fuel carbon taxes: Evidence from station-level data," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    19. Kathryn L. Combs & Jaebeom Kim & Jim Landers & John A. Spry, 2016. "The Responsiveness of Casino Revenue to the Casino Tax Rate," Public Budgeting & Finance, Wiley Blackwell, vol. 36(3), pages 22-44, September.
    20. Jacquelyn Pless & Arthur A. van Benthem, 2019. "Pass-Through as a Test for Market Power: An Application to Solar Subsidies," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 367-401, October.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mee:wpaper:0517. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sharmila Ganguly (email available below). General contact details of provider: https://edirc.repec.org/data/cemitus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.