Working Paper: NBER ID: w9152
Authors: Sarah E. West; Roberton C. Williams III
Abstract: Most studies suggest that environmental taxes are regressive, and thus are unattractive policy options. We consider the distributional effects of a gasoline tax increase using three welfare measures and under three scenarios for gas tax revenue use. To incorporate behavioral responses we use Consumer Expenditure Survey data to estimate a consumer demand system that includes gasoline, other goods, and leisure. We find that the gas tax is regressive, but that returning the revenue through a lump-sum transfer more than offsets this, yielding a net increase in progressivity. We also find that ignoring behavioral changes in distributional calculations overstates both the overall burden of the tax and its regressivity.
Keywords: Environmental Taxes; Gasoline Tax; Income Distribution; Behavioral Responses; Consumer Demand System
JEL Codes: H22; Q48; R48; D12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing the gasoline tax (H29) | Regressive outcomes (P27) |
| Returning revenue through a lump-sum transfer (H23) | Offsetting regressivity (H23) |
| Behavioral responses of households to tax changes (H31) | Sensitivity to price changes (D11) |
| Ignoring behavioral changes (D91) | Overstates burden of the tax (H22) |
| Using tax revenue to reduce labor income taxes (H31) | Efficiency gains (D61) |
| Using tax revenue to reduce labor income taxes (H31) | Does not alleviate regressivity of gas tax (H29) |
| Behavioral responses and revenue use scenarios (D91) | Influence distributional effects of gasoline tax (H23) |