$2.00 Gas! Studying the Effects of a Gas Tax Moratorium

Joseph J. Doyle and Krislert Samphantharak

No 12266, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There are surprisingly few estimates of the effect of sales taxes on retail prices, especially at the firm level. Further, along both sides of a state border, a change in one state%u2019s sales tax can shed light on the nature of competition, as a subset of firms effectively experiences a change in its marginal cost. This paper considers the suspension, and subsequent reinstatement, of the 5% gasoline sales tax in Illinois and Indiana following a temporary price spike in the spring of 2000. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily, gas station-level data, retail gas prices are found to drop by 3% following the suspension, and increase by 4% following the reinstatements. After linking the stations to driving distance data, some evidence suggests that the tax increases are associated with higher prices up to an hour%u2019s drive into neighboring states.

JEL-codes: H2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-pub
Date: Written 2006-05
Note: PE EEE
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