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$2.00 Gas! Studying the Effects of Gas Tax Moratorium

Joseph J. Doyle, Jr. and Krislert Samphantharak

Working Papers from Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research

Abstract: Despite the considerable attention paid to the theory of tax incidence, there are surprisingly few estimates of the pass-through rate of sales taxes on retail prices. This paper estimates the effect of a suspension and subsequent reinstatement of the gasoline sales tax in Illinois and Indiana on retail prices. Earlier laws set the timing of the reinstatements, providing plausibly exogenous changes in the tax rates. Using a unique dataset of daily gasoline prices at the station level, retail gas prices are found to drop by 3% following the elimination of the 5% sales tax, and increase by 4% following the reinstatements, compared to neighboring states. Some evidence also suggests that the tax reinstatements are associated with higher prices up to an hour into neighboring states, which provides some evidence on the size of the geographic market for gasoline. Effects across different competitive environments are considered as well.

Date: 2005-12
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-pub
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Related works:
Journal Article: $2.00 Gas! Studying the effects of a gas tax moratorium (2008) Downloads
Working Paper: $2.00 Gas! Studying the Effects of a Gas Tax Moratorium (2006) Downloads
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