Gasoline Taxes and Consumer Behavior

Abstract

Gasoline taxes can be employed to correct externalities associated with automobile use, to reduce dependency on foreign oil, and to raise government revenue. Our understanding of the optimal gasoline tax and the efficacy of existing taxes is largely based on empirical analysis of consumer responses to gasoline price changes. In this paper, we directly examine how gasoline taxes affect consumer behavior as distinct from tax-exclusive gasoline prices. Our analysis shows that a 5-cent tax increase reduces gasoline consumption by 1.3 percent in the short-run, much larger than that from a 5-cent increase in the tax-exclusive gasoline price. This difference suggests that traditional analysis could significantly underestimate policy impacts of tax changes. We further investigate the differential effect from gasoline taxes and tax-exclusive gasoline prices on both the intensive and extensive margins of gasoline consumption. We discuss implications of our findings for the estimation of the implicit discount rate for vehicle purchases and for the fiscal benefits of raising taxes.

The Effect of Fuel Price Changes on Fleet Demand for New Vehicle Fuel Economy

“…Recent literature has found that gasoline consumption has a larger response to gasoline tax changes than it does to tax‐exclusive gasoline price changes (Li et al . [2014]; Rivers and Schaufele [2015]), and some evidence suggests that the demand for fuel economy may also respond more to gasoline tax changes (Li et al . [2014]).…”

“…[2014]; Rivers and Schaufele [2015]), and some evidence suggests that the demand for fuel economy may also respond more to gasoline tax changes (Li et al . [2014]). In our analysis, it would be interesting to explore whether fleet and retail buyers respond differently to gasoline tax changes compared to market price changes.…”

GST Reform in Australia: Implications of Estimating Price Elasticities of Demand for Food

“…Li et al (2014) study the effect of changes in gasoline prices and gasoline taxes on consumption and find that consumers respond more strongly to gasoline tax changes. Li et al (2014) study the effect of changes in gasoline prices and gasoline taxes on consumption and find that consumers respond more strongly to gasoline tax changes.…”

“…Li et al (2014) study the effect of changes in gasoline prices and gasoline taxes on consumption and find that consumers respond more strongly to gasoline tax changes. However, the findings of Li et al (2014) suggest that responses to tax changes may still be greater due to the strong coverage of tax changes in the media. First, consumers may be more sensitive to taxation because they consider tax changes to be more persistent than price changes.…”

Effect of intelligence on consumers' responsiveness to a pro‐environmental tax: Evidence from large‐scale data on car acquisitions of male consumers

“…In the present empirical study, we aim to elucidate this challenge by examining whether the effectiveness of pro‐environmental tax incentives is affected by consumers' cognitive abilities. Indeed, research in economics and psychology has indicated that the cognitive salience of tax incentives (or, observability of tax information) affects consumer responses to those incentives (Chetty, Looney, & Kroft, 2009; Finkelstein, 2009; Li, Linn, & Muehlegger, 2012; Rivers & Schaufele, 2012). While focusing on comparing the overall salience of different tax incentives, however previous studies have not examined the influence that consumers' heterogeneous cognitive abilities may have on their reactions to a given tax incentive.…”