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

54 Pages Posted: 1 Jun 2006  

Joseph J. Doyle Jr.

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER)

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy

Date Written: May 2006

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%u2019s 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%u2019s drive into neighboring states.

Suggested Citation

Doyle, Joseph J. and Samphantharak, Krislert, $2.00 Gas! Studying the Effects of a Gas Tax Moratorium (May 2006). NBER Working Paper No. w12266. Available at SSRN: https://ssrn.com/abstract=905523

Joseph John Doyle Jr. (Contact Author)

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

50 Memorial Drive
E52-410
Cambridge, MA 02142
United States
617-452-3761 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
858-534-3939 (Fax)

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