britton blog

An American postgraduate studying abroad in Galway, Ireland

Busy with gasoline tax research project

February 28th, 2007 | Category: NUI Galway, Pigovian tax, carbon tax, economics, writing

Smog in St. PetersburgI am very busy this week preparing for a presentation for my research thesis. My topic is regarding the proposal of increasing gasoline (petrol) taxes in the US in order to reduce petroleum consumption, thereby reducing carbon dioxide emissions and slowing the inevitable global warming trend. I am looking at federal and state gasoline taxes as compared to other OECD countries. US gasoline taxes are significantly lower and do very little to encourage conservation of oil. One of my favorite economists, Dr Greg Mankiw, is a champion of Pigovian taxes which are taxes that correct negative externalities. In other words, a graduated increase of the federal gasoline tax will correct the market in order to reduce oil consumption, reduce carbon dioxide emissions, and encourage innovative technologies and cleaner alternative fuel sources.

Dr Mankiw’s manifesto has inspired me to research this further. My research will examine the optimal tax at which consumption will be reduced and will study the proposal of offsetting payroll or income taxes so that there will be zero gain or loss in tax revenue overall.

If your head isn’t spinning and I still have your attention. You will see that I am extremely busy and likely will not post again until the dust has settled from my presentation on Thursday evening. I might have to have a few pints and some good craic. See you soon!

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Viewing 4 Comments

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    Our Washington State gasoline taxes are spent on highways, bridges, and ferries, but not on city streets (where most of the gasoline is used.) It would be political suicide for a city council member to suggest a local gasoline tax for street upkeep, or any other purpose. Of course such a local gas tax would just drive people to the suburbs to purchase gasoline. If I had a national voice, I would propose a federal gasoline tax that would be rebated to the cities and counties where it was collected, for the purpose of road construction, maintenance, and traffic safety? This kind of tax could bring the full cost of driving to the driving public.
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    Pete,

    My project actually does examine federal gasoline taxes primarily. When I'm finished with the paper I plan to post it here. There are several ideas about how the tax would be implemented. But the general consensus seems to be introducing it on a periodic basis over several years. The current federal tax is a paltry (compared to Europe) 18.4 cents per gallon with each state imposing their own in addition to that. The average total tax is around 40 cents. Economist Greg Mankiw proposes, for example, $1.00 spread over 10 years i.e. 10 cents per year. One of the main questions in my paper is: What is the optimal gasoline tax needed to reduce demand?

    There is also the proposal of reducing payroll taxes and offsetting that reduction with the increase of the federal gasoline tax. This would make the tax regressive, since poorer people tend to use less petroleum that the richer, and distribute the burden more fairly. The market will figure out greater efficiencies in oil usage, new technologies will be developed and our consumption will decrease.
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    Nice site! kabababrubarta
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    Thanks for visiting, I'm glad you like it.
 

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