This paper proposes and tests a better-defined interpretation of the different responses of gasoline demand to tax changes and to market-related price changes. Namely, the signaling effect of gasoline taxes is one that impacts on long-run consumer decisions in addition to the incentives provided by tax-inclusive gasoline prices. Our hypothesis is tested using a complete demand system augmented with information on gasoline taxes and fitted to household-level data from the 2006 to 2013 rounds of the US Consumer Expenditure survey. Information on gasoline taxes is found to be a significant determinant of household demand additional to tax-inclusive gasoline prices. The equity implications are examined by contrasting the incidence across income distribution of a simulated $0.22/gallon tax increase to that of a market-related price increase equal in size. The tax increase is clearly regressive, slightly more than the market-related price increase. However, regressivity is by no means a reason to give up gasoline taxes as an instrument for reducing gasoline consumption externalities. Their high effectiveness in reducing gasoline demand implies that small tax increases can substantially improve the environment while minimizing the related distributional effects. Also, gasoline taxes generate revenue that can be used to offset their regressivity.

Tiezzi, S., Verde, S.F. (2019). The signaling effect of gasoline taxes and its distributional implications. THE JOURNAL OF ECONOMIC INEQUALITY, 17, 145-169 [10.1007/s10888-018-9397-7].

The signaling effect of gasoline taxes and its distributional implications

Silvia Tiezzi;Stefano F. Verde
2019-01-01

Abstract

This paper proposes and tests a better-defined interpretation of the different responses of gasoline demand to tax changes and to market-related price changes. Namely, the signaling effect of gasoline taxes is one that impacts on long-run consumer decisions in addition to the incentives provided by tax-inclusive gasoline prices. Our hypothesis is tested using a complete demand system augmented with information on gasoline taxes and fitted to household-level data from the 2006 to 2013 rounds of the US Consumer Expenditure survey. Information on gasoline taxes is found to be a significant determinant of household demand additional to tax-inclusive gasoline prices. The equity implications are examined by contrasting the incidence across income distribution of a simulated $0.22/gallon tax increase to that of a market-related price increase equal in size. The tax increase is clearly regressive, slightly more than the market-related price increase. However, regressivity is by no means a reason to give up gasoline taxes as an instrument for reducing gasoline consumption externalities. Their high effectiveness in reducing gasoline demand implies that small tax increases can substantially improve the environment while minimizing the related distributional effects. Also, gasoline taxes generate revenue that can be used to offset their regressivity.
2019
Tiezzi, S., Verde, S.F. (2019). The signaling effect of gasoline taxes and its distributional implications. THE JOURNAL OF ECONOMIC INEQUALITY, 17, 145-169 [10.1007/s10888-018-9397-7].
File in questo prodotto:
File Dimensione Formato  
Tiezzi_et_al-2018-The_Journal_of_Economic_Inequality.pdf

non disponibili

Tipologia: PDF editoriale
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 886.99 kB
Formato Adobe PDF
886.99 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
RSCAS_2017_06.pdf

accesso aperto

Descrizione: Working paper
Tipologia: Pre-print
Licenza: PUBBLICO - Pubblico con Copyright
Dimensione 698.48 kB
Formato Adobe PDF
698.48 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11365/1058244