Political Economy Obstacles to Fuel Taxation

• Published in: The Energy journal (Cambridge, Mass.) Mass.), 2004-01, Vol.25 (3), p.1-17
• Main Authors: Hammar, Henrik, Löfgren, Åsa, Sterner, Thomas
• Format: Article
• Language: English
• Subjects: Analysis; Applied sciences; Automobile drivers; Automobiles; Causality; Consumers; Consumption; Consumption taxes; Economic data; Elasticity of demand; Elevators & escalators; Energy; Energy consumption; Energy economics; Energy efficiency; Energy policy; Environmental policy; Estimated taxes; Exact sciences and technology; Fossil fuels; Fossil fuels and derived products; Fuel; Fuel consumption; Fuel industry; Fuel taxes; Gasoline; Gasoline prices; Gasoline taxes; General, economic and professional studies; Global warming; Gross domestic product; Income taxes; National debt; Oil; Per capita; Political aspects; Political behavior; Political economy; Politics; Price elasticity; Public transportation; Supply and demand; Tax increases; Tax policy; Tax rates; Taxation; Taxes
• ISSN: 0195-6574; 1944-9089
• DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-1

Many studies have shown that fuel demand is quite elastic and that the best way to reduce fuel use (to tackle climate issues) is by taxing fuel. Yet it seems almost impossible to do so, particularly in those countries with low prices and high demand. The purpose of this paper is to cast light on the difficulties of raising gasoline taxes by analyzing the determinants of gasoline taxation. We believe that one of the reasons for the difficulties is that political pressure influences the political decisions regarding taxation of gasoline consumption. Not only do low taxes and thus low prices encourage high consumption, but high levels of consumption also lead to considerable pressure against raising the taxes. Our findings also point to the significance of other factors such as government debt (a higher debt leads to a higher gasoline tax rate).