Gas taxes are again in fashion

| 2 Comments

From The Becker-Posner Blog: Gasoline Prices--Posner's Comment the higher gas tax is again in fashion.

Respected economist again advocates higher gas taxes:
Posner writes "But better than a government-planned and -funded project would be, in my opinion, heavy gasoline taxes. They would give private industry strong incentives to discover good substitutes and also means for reducing carbon-dioxide emissions and indeed removing carbon dioxide from the atmosphere."

Here in addition to instability in energy-producing countries (somehow justifying higher taxes, which will reduces those countries' incomes, which is unlikely to increase stability), the global warming argument is identified.

Becker however cites the work of Resources for the Future (I believe referring to a study by Martin Wachs, formerly of UC Berkeley, now of Rand) Becker writes "Federal, state, and local governments of the U.S. combine to impose taxes on gasoline of about 60 cents per gallon. Studies by Resources for the Future suggest that this is more than adequate to cover all effects of pollution, aside perhaps from some larger estimates of the effects of gasoline consumption on greenhouse warming. The purpose of gasoline taxes is to cut consumption by raising gasoline prices to consumers, but the $1 increase in gasoline prices during the past year has cut gas consumption. These higher prices, if they stay, will cut gasoline usage much further as consumers have more time to adjust their behavior. If the optimal tax on gasoline was $1 when gasoline sold for $2, the effective tax is now $1.60: the 60 cents imposed by governments and the $1 increase due to market forces. So, if anything, this argument suggests that gasoline taxes be reduced rather than increased while prices are so high."

(However Wachs has written a piece A Dozen Reasons for Raising Gasoline Taxes (PDF). An important reason is to help bring about better user charges, namely road pricing. )

Clearly there is uncertainty about the extent and cost and valuation of potential climate change. The fact that oil prices are now higher should decrease the calls for a gas tax, as the market is now accomplishing the ends a gas tax sets out to do. Yet, the market demand (expressed as the number of advocacy blog posts) for a gas tax apparently is rising as the price of gas rises.

2 Comments

Implementation of high gas tax can be more complex than it seems. Realistically speaking, in order to prevent economic meltdown, commercial vehicles need to be excluded (or taxed at a lower rate) from the higher gas tax. Then, there must be a system to distinguish gas by the purchaser/use purpose. So, the gas must be dyed in several types. Just a thought.

Kazuya makes a good point. Moreover, if the difference in tax between commercial and private vehicles becomes too great, people will switch driving to commercial vehicles where possible (use the company truck instead of private car), which would create perverse effects.

-- dml

David Levinson

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This page contains a single entry by David Levinson published on May 10, 2006 10:45 PM.

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