The Political Economy of Motor-Fuel Taxation

This paper examines the political and economic underpinnings of gasoline tax policy. The theoretical model extends the earlier work ofHettich and Winer (1988) to flush out the effect of a change in the pre-tax price of a taxable activity on the politically optimal tax rate. Using a large cross-secti...

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Bibliographic Details
Published in:The Energy journal (Cambridge, Mass.) Mass.), 1999-01, Vol.20 (1), p.43-59
Main Authors: Goel, Rajeev K., Nelson, Michael A.
Format: Article
Language:English
Subjects:
293000 - Energy Planning & Policy- Policy, Legislation, & Regulation
AUTOMOTIVE FUELS
Consumer Price Index
Costs
Economic models
ECONOMIC POLICY
Energy economics
ENERGY PLANNING, POLICY AND ECONOMY
Expenditures
Federal taxes
Fiscal policy
Fuel taxes
FUELS
GASOLINE
Gasoline prices
Gasoline taxes
GOVERNMENT POLICIES
Highways
INSTITUTIONAL FACTORS
Interest groups
Legislatures
LIQUID FUELS
MARKET
Motor fuels
Optimal taxation
Petroleum industry
PETROLEUM PRODUCTS
POLITICAL ASPECTS
Political economy
Politics
Public policy
Refereed Papers
Roads & highways
SOCIO-ECONOMIC FACTORS
Studies
Tax policy
Tax rates
Tax revenues
Taxation
TAXES
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Summary:This paper examines the political and economic underpinnings of gasoline tax policy. The theoretical model extends the earlier work ofHettich and Winer (1988) to flush out the effect of a change in the pre-tax price of a taxable activity on the politically optimal tax rate. Using a large cross-sectional sample of U.S. states over 1960-94, the empirical model tests the predictions of the theoretical model within the context of the state tax policy on gasoline. While simultaneously controlling for other politico-economic influences, we find that the influence of changes in gas prices on tax rates is negative. To our knowledge, this is the first study to include a fully developed theoretical model and its empirical application to the gasoline market for a test of the votemaximizing model of tax policy.
ISSN:0195-6574
1944-9089
DOI:10.5547/ISSN0195-6574-EJ-Vol20-No1-3