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

Joseph J. Doyle, Jr. 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's 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's drive into neighboring states.

JEL-codes: H2 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-ene, nep-pbe and nep-pub
Note: PE EEE
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Published as Doyle Jr., Joseph J. & Samphantharak, Krislert, 2008. "$2.00 Gas! Studying the effects of a gas tax moratorium," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 869-884, April.

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Journal Article: $2.00 Gas! Studying the effects of a gas tax moratorium (2008) Downloads
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