Gas Tax Incidence

Rob Goodspeed points out that we have substantial evidence that consumers bear only around half the burden of gasoline taxes over the long run, with the rest of the incidence falling on the oil companies. Here’s one study:

Using the estimated coefficients, we can determine the incidence of federal and state specific taxes. An increase in the federal tax by 1¢ raises the retail price by 0.47¢ and decreases the wholesale price by 0.56¢. Thus, consumers and wholesalers each pay roughly half of the federal specific tax.

In other words, we really should be raising the gas tax. There are a billion reasons this won’t happen, but if we were to raise the gas tax, then rebate half the revenues to citizens on some kind of flat per person basis, and make the other half available to fund transit projects, there’d be no net burden on the population, you’d create an incentive to use alternative forms of transportation where they exist, and you’d have a pool of revenue available to create alternative forms of transportation.

Photo by Flickr user rnugraha used under a Creative Commons license