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Slippery Up and Sticky Down? An Analysis of the Auckland Regional Fuel Tax

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Abstract

This paper examines whether retail fuel prices in New Zealand adjust asymmetrically to cost shocks, using the introduction and repeal of the Auckland Regional Fuel Tax (ARFT) as a natural experiment. The ARFT imposed a 10 cents-per-litre levy on fuel sold in Auckland from July 2018 to June 2024, while neighbouring regions remained untaxed. Exploiting these sharp and opposite policy changes, the analysis employs a difference-in-differences framework using daily, station-level fuel price data from Auckland, Northland, and Waikato. At the aggregate level, fuel prices increased by 10.8 cents per litre following the tax introduction and fell by 11.6 cents per litre after its repeal, indicating near-complete and symmetric pass-through on average. However, substantial spatial heterogeneity emerges when local competitive conditions are considered. Among stations located close to competitors operating under a different tax regime, prices rose almost fully after the tax was introduced but fell by only around three-quarters as much following its removal. Distance-based interaction estimates confirm that pass-through varies systematically with proximity to oppositely treated competitors, consistent with localised asymmetric price transmission driven by spatial competition. These findings show that while fuel prices may adjust symmetrically on average, asymmetric adjustment can persist in local markets, with important implications for the incidence of regional fuel taxes and their repeal.

Suggested Citation

  • Joshua McNamara, 2026. "Slippery Up and Sticky Down? An Analysis of the Auckland Regional Fuel Tax," Working Papers in Economics 26/01, University of Waikato.
    • Handle: RePEc:wai:econwp:26/01
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    References listed on IDEAS

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    1. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    2. 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.
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    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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