Gasoline Tax as a Corrective Tax: Estimates for the United States, 1970-1991

Gasoline consumption creates externalities, through pollution, road congestion, accidents, and import dependence. Mat effect would a higher gasoline tax have on the related magnitudes: gasoline consumption, miles driven, and road fatalities? In this paper, separate models are estimated for gasoline use per mile, miles driven per driver, and fatalities per mile driven. We use data from 50 U.S. states and DC for 1970 through 1991, with a variety of stochastic specifications. The own-price elasticity of demand for gasoline is derived from projections with, and without, a higher gasoline tax, and is found to be between -0.12 and -0.17 in the short-run, and between -0.23 and -0.35 in the long-run. A tax of $1 per gallon would cut use by 15-20%, miles driven by 11-12%, and fatalities by 16 18% over 10 years, while raising almost $100 billion in revenue annually.

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