The Political Economy of Motor-Fuel Taxation

Rajeev Goel and Michael Nelson

The Energy Journal, 1999, vol. Volume20, issue Number 1, 43-59

Abstract: This paper examines the political and economic underpinnings of gasoline tax policy. The theoretical model extends the earlier work of Hettich 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.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (17)

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