The Political Economy of Motor-Fuel Taxation

The Energy Journal, vol. 20, no. 1, pp. 43-59, 1999

Posted: 30 Mar 2016 Last revised: 5 Apr 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Michael A. Nelson

University of Akron - Department of Economics

Date Written: 1999

Abstract

This paper examines the political and economic underpinnings of gasoline tax policy. The theoretical model extends the earlier work of Hettich and Winer (1988) to flush out the effect of a change in the pre-tax price of a taxable activity on the politically optimal tax rate. Using a large cross-sectional sample of U.S. states over 1960-94, the empirical model tests the predictions of the theoretical model within the context of the state tax policy on gasoline. While simultaneously controlling for other politico-economic influences, we find that the influence of changes in gas prices on tax rates is negative. To our knowledge, this is the first study to include a fully developed theoretical model and its empirical application to the gasoline market for a test of the vote-maximizing model of tax policy.

Suggested Citation

Goel, Rajeev K. and Nelson, Michael A., The Political Economy of Motor-Fuel Taxation (1999). The Energy Journal, vol. 20, no. 1, pp. 43-59, 1999. Available at SSRN: https://ssrn.com/abstract=2755747

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Michael A. Nelson

University of Akron - Department of Economics ( email )

Akron, OH 44325
United States
330-972-7939 (Phone)
330-972-5356 (Fax)

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