Road Pricing and Gasoline Taxes The Issues.ppt

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					Road Pricing and Gasoline Taxes:
           The Issues

            Marielle Vena
            Economics 539
            March 9, 2009
 What are the issues at the center of the
  academic research on gasoline taxes?
   Why are they needed?
   Why do they need to be increased?
   Are there alternatives that could achieve the
    same outcomes?
   What are the distributional effects of these
The Literature
 23 articles published in journals such as:
      American Economic Review
      Transportation Quarterly
      National Tax Journal
      Journal of Policy Analysis & Management
      Journal of Environmental Economics & Management
      Applied Economics Letters
      Journal of Transport Economics & Policy
      IEEE Systems Journal
      Ecological Economics
 4 pieces from the popular press
    Provide general information and are not given the same
     consideration as the academic literature presented
History and Necessity

 The first gas tax was implemented in the
  U.S. by the federal government in 1932
 Designed to function as a road “user fee”
  that charges motorists for the damage they
  cause to the roads
 Primary source of funding for U.S
  transportation projects

 The revenues from gasoline taxes no longer cover
  the expenditures needed to maintain and construct
  the roads
    Inflation
       Real value of CA state gas tax in 1996 is the same level as it
        was in the 1920s (Ang-Olson, Wachs, and Taylor, 2000)
    Vehicle Fleet becoming more fuel efficient
       Cause the same damage to the roads, but contribute less fuel
        tax (Porter and Kim, 2008)
    Rising costs of transportation facilities materials
       Engineering Newsrecord Construction Cost Index, which
        tracks the prices of various material inputs in several cities
        over time >> 817% increase in these costs from 1957 to 2002 5
        (Wachs, 2003)
 Expect the deficit of the Highway Trust Fund to
  increase and become unsustainable
    Growing trend of borrowing to cover the costs of
       Increased 18% from 1995 to 1999 (Wachs, 2003)
 1998 survey of 40 economists reveals unanimous
  support for a 25 cent increase in the gas tax
  (Wachs, 2003)
 What is the optimal level of taxation?

The Optimal Tax
 Goals are efficiency and equity
    Equity is addressed in the discussion of distributional
    An efficient user fee would charge motorists a tax
     exactly proportional to the cost of the damage done to
     the roads
    Highway user fees are about 20% below highway-
     related expenditures, for all levels of government and
     all vehicle classes in the US in 2000, according the the
     1997 Highway Cost Allocation Study (Delucchi, 2007)
       Recommends increase of 20-70 cents per gallon
       This is prohibitively large, considering the average current
        combined state and federal tax is around 38 cents
The Optimal Tax: Europe
 Optimal level of U.S. tax is more than double the
  current rate, while the UK optimal is exceeded by
  half (Parry and Small, 2005)
 US gas tax is among the lowest of all industrial
    European taxes per gallon average 20 times US federal
     rates (Chouinard and Perloff, 2004)
    Generate a larger share of the country’s tax revenue
    Funds not restricted to use for transportation projects

Fuel Consumption
 Microeconomic theory suggests that
  increasing gas prices, such as with a tax
  levied on consumers, will result in a
  decrease in the quantity of fuel purchased
  and consumed (Austin and Dinan, 2005)
 Public consensus favors reducing fuel
  consumption for a variety of reasons

Fuel Consumption:
 Homeland Security
 Hsing (1994), Parry (2005), and Hsu,
  Walters, and Purgas (2008) convey the
  potential homeland security benefits that
  may be achieved from reducing gasoline
  consumption by diminishing the country’s
  dependence on foreign suppliers

Fuel Consumption:
Emissions and the Environment
 The environmental benefits of reducing fuel
  consumption through a gasoline tax are addressed
  by Walls and Hanson (1999), Sipes and
  Mendelsohn (2001), Khazzoom (1991), and Yohe
 Amount of pollution from vehicle emissions is a
  function of fuel usage
 Despite the introduction of more fuel efficient
  vehicles, emissions continue to rise because of:
    Preferences for larger engine size
    More vehicles on the roads each year
    Vehicles are driving more miles             11
Fuel Consumption:
 Reverse Causality
 One of the most important conclusions from
  Hammar, Lofgren, and Sterner (2004) is
  their evidence to suggest some reverse
  causality in the relationship between
  gasoline taxes and consumption
   not only do low taxes and thus low (gas) prices
    encourage high consumption, but high levels of
    consumption also lead to considerable pressure
    against raising the taxes
Pollution Taxes
 Research suggests some potential for gasoline
  taxes to reduce vehicle emissions could also be
  achieved through pollution taxes
    Often seen as one of the most cost-effective means of
     reducing pollution.
    Widely opposed by individuals and governments (Hsu,
     Walters, and Purgas, 2008)
    Fullerton and West (2002) examine the potential for
     adjusting the gasoline tax to create the market
     incentives of a pollution tax, looking at both
     homogeneous consumers and heterogeneous
     consumers, which allows them to account for
     preferences regarding engine size and miles
 Address funding and/or environmental concers:
    Indexed Gasoline Taxes (Ang-Olson, Wachs, and
     Taylor, 2000)
    Grams-per-mile Gasoline Taxes (vs. grams-per-gallon)
     (Khazzoom, 1991)
    Vehicle Miles Travelled Taxes (Porter and Kim, 2008,
     and West, 2004)
    CAFE standards (Austin and Dinan, 2005, and West
     and Williams, 2005)
    Pay-As-You-Drive Insurance (Parry, 2005)

Distributional Effects
 Bento et al. (2005) and West and Williams (2004)
  consider the distributional effects of different
  aspects of gasoline taxes.
 Poorer HHs tend to drive fewer miles, but fuel
  purchases make up a larger portion of their income
    Focuses on how the effects differ depending on how the
     revenues are “recycled” back into the system
       using the additional gasoline tax revenue to fund lump-sum
        transfers actually makes the policy progressive (West and
        Williams, 2004)

Distributional Effects
 West (2005), West (2004) and Walls and
  Hanson (1999) reflect on the distributional
  effects of emissions taxes.
 Poorer HHs tend to drive older, dirtier
   VMT taxes are the least regressive option, and
    for some income groups are actually
    progressive (West, 2004)
Literature Analysis
 Trends observed that speak to the credibility of the
  academic literature and contributed to the
  selection of these articles over other potential
    methods used and data sources of the research in these
     articles is explained in enough detail to make their
     results replicable by other researchers with similar
     knowledge and expertise, as with Bento et al. (2005)
     and Walls and Hanson (1999). Sipes and Mendelsohn
     (2001), include appendices to their article detailing their
     survey methods (307).
Literature Analysis
 Not all of these articles present literature from
  other viewpoints, such as Wachs (2003)
 The authors of each article do provide some
  degree of theoretical justification for their
  decisions, such as Austin and Dinan (2005)
 Specifically address how a model or functional
  form is chosen, as in Fullerton and West (2002)
 Explain how the work in question fills any gaps
  or provides additional contributions to the study of
  the subject, as exhibited by Delucchi (2007).
Literature Analysis
 Include different specifications, like Hsing
  (1994), to discover to what extent the
  choice of models impacts the results.
 West and Williams (2005), explain what
  steps have been taken to ensure that any
  necessary adjustments have been made such
  that the results generated are robust.

Literature Analysis
 Parry and Small (2005), acknowledge the potential
  limitations of their study, as do many of the other
    They address how results might be interpreted, as in
     Hsu, Walters, and Purgas’ (2008) discussion of the
     metric effect
    Include sections detailing the rationale for and effects
     of certain assumptions, as in Parry (2005).
    Make suggestions regarding how future research can be
     improved or made more complete, as demonstrated by
     Porter and Kim (2008) and Kulash (2001).
         Literature Analysis
 Overall, the academic literature presented in
  my paper can be deemed credible not only
  by the virtue of its publication, but because
  each article was screened to meet the above
  selection criteria and represent the richest
  and most reliable information available on
  the subject of gasoline taxes.

 Gravity of the funding crisis suggests the
  need for further research and analysis
 OR VMT tax experiment especially
  promising in terms of its efficiency and
  equity benefits, but faces obstacles:
   Public Opinion
   Large-scale distribution of new RFID


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