James Alm () (Andrew Young School of Policy Studies, Georgia State University) Edward Sennoga (Andrew Young School of Policy Studies, Georgia State University) Mark Skidmore () (Department of Economics, University of Wisconsin - Whitewater)
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In this paper we use monthly gasoline price data for all fifty U.S. states over the period 1984 to 1999 to examine the incidence of state gasoline excise taxes. Standard economic theory predicts full shifting of the excise tax to consumers when the supply of gasoline is perfectly elastic, and our empirical results are largely consistent with this prediction. In general, we find full shifting of gasoline taxes to the final consumer, with changes in gasoline taxes fully reflected in the tax-inclusive gasoline price almost instantly, a result consistent with a retail gasoline market in which firms are perfectly competitive and produce at constant cost. In addition, although we find that gasoline retail prices demonstrate asymmetric responses to changes in gasoline wholesale prices, we find only limited evidence of such behavior for retail prices with respect to gasoline excise taxes. Importantly, we also present a novel application of a spatial price discrimination model to examine tax incidence in markets that are not perfectly competitive. In this alternative framework, the incidence of excise taxes depends upon the competitiveness of retail gasoline markets, which depends in turn on spatial aspects of the market. Consistent with this alternative theoretical framework, our empirical estimates demonstrate that gasoline markets in urban states exhibit full shifting, but those in rural states demonstrate somewhat less than full shifting.
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Paper provided by UW-Whitewater, Department of Economics in its series Working Papers with number
05-09.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Laurence J. Kotlikoff & Lawrence H. Summers, 1988.
"Tax Incidence,"
NBER Working Papers
1864, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Kotlikoff, Laurence J. & Summers, Lawrence H., 1987.
"Tax incidence,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 16, pages 1043-1092
Elsevier.
[Downloadable!] (restricted)
Don Fullerton & Gilbert E. Metcalf, 2002.
"Tax Incidence,"
NBER Working Papers
8829, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Fullerton, Don & Metcalf, Gilbert E., 2002.
"Tax incidence,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872
Elsevier.
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