Working Paper: NBER ID: w16863
Authors: Justin Marion; Erich Muehlegger
Abstract: The incidence of taxes on consumers and producers plays a central role in evaluating energy tax policy, yet the literature testing the main predictions of the tax incidence model is sparse. In this paper, we examine the pass-through rate of state gasoline and diesel taxes to retail prices, and importantly we estimate the dependence of pass-through on factors constraining the gasoline and diesel supply chains. We consider several factors that alter the elasticity of supply, including within state heterogeneity in gasoline content requirements, refinery capacity utilization, inventory constraints, and variation in the demand for untaxed uses of diesel. In general, we find that in periods of time when the supply chain is constrained, and the constraint is plausibly unrelated to shifts in demand, the pass-through rate of fuel taxes declines. We describe several potential implications for tax policy, including tax breaks during peak driving season and during times of supply disruptions such as after major hurricanes.
Keywords: Fuel Tax; Tax Incidence; Supply Conditions; Retail Prices
JEL Codes: H22; H71; L98; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fuel tax rates (H29) | retail prices (D49) |
| supply chain constraints (L91) | passthrough rates (G19) |
| capacity utilization (E23) | passthrough rates (G19) |
| low inventory levels (L81) | retail prices (D49) |
| regulatory heterogeneity in gasoline supply (L95) | passthrough rates (G19) |