Working Paper: NBER ID: w3578
Authors: James M. Poterba
Abstract: Claims of the regressivity of gasoline taxes typically rely on annual surveys of consumer income and expenditures which show that gasoline expenditures are a larger fraction of income for very low income households than for middle or high-income households. This paper argues that annual expenditure provides a more reliable indicator of household well-being than annual income. It uses data from the Consumer Expenditure Survey to reassess the claim that gasoline taxes are regressive by computing the share of total expenditures which high-spending and low-spending households devote to retail gasoline purchases. This alternative approach shows that low?expenditure households devote a smaller share of their budget to gasoline than do their counterparts in the middle of the expenditure distribution. Although households in the top five percent of the total spending distribution spend less on gasoline than those who are less well-off, the share of expenditure devoted to gasoline is much more stable across the population than the ratio of gasoline outlays to current income. The gasoline tax thus appears far less regressive than conventional analyses suggest.
Keywords: Gasoline Tax; Regressivity; Consumer Expenditure
JEL Codes: H24; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| household expenditure level (D12) | share of budget devoted to gasoline (H72) |
| low-expenditure households (D12) | share of budget devoted to gasoline (H72) |
| middle-expenditure households (D12) | share of budget devoted to gasoline (H72) |
| top five percent of expenditure distribution (D31) | share of total expenditures on gasoline (E20) |
| expenditure levels (H59) | gasoline spending shares (N72) |
| expenditure shares (E20) | income (E25) |
| gasoline taxes (H29) | regressivity based on income data (D31) |