Policy Research

The effectiveness of gasoline taxation to manage air pollution

Kristin N. Sipes, Robert Mendelsohn

Summary

The article examines consumer responses to both hypothetical and implemented increases in gasoline taxes. The article argues that imposing a corrective tax equal to the environmental damage caused by the utilization of gasoline would be economically efficient. However the study also continues to add that although the tax would be economically efficient driving will not decrease significantly, and only small benefits to the environment will be gained. This, they argue, is because American consumers value freedom of transportation so heavily that they are willing to continue with driving habits even after large increases in gasoline taxes. The article also adds that gas taxes are income inelastic meaning that gasoline taxes are very regressive because people with high incomes do not drive significantly more.

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Policy Implications

This article can be used in consideration of efficient taxation designed to reduce environmental burdens, or to raise revenues. The study argues that because American consumers are so prone to maintain driving habits that gas taxes will continue to be very unpopular politically and difficult to pass. However, this also means that gasoline taxes will be great methods to raise revenues.