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Political Economy Obstacles to Fuel Taxation

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  • Henrik Hammar
  • Löfgren Ã…sa
  • Thomas Sterner

Abstract

Many studies have shown that fuel demand is quite elastic and that the best way to reduce fuel use (to tackle climate issues) is by taxing fuel. Yet it seems almost impossible to do so, particularly in those countries with low prices and high demand. The purpose of this paper is to cast light on the difficulties of raising gasoline taxes by analyzing the determinants of gasoline taxation. We believe that one of the reasons for the difficulties is that political pressure influences the political decisions regarding taxation of gasoline consumption. Not only do low taxes and thus low prices encourage high consumption, but high levels of consumption also lead to considerable pressure against raising the taxes. Our findings also point to the significance of other factors such as government debt (a higher debt leads to a higher gasoline tax rate).

Suggested Citation

  • Henrik Hammar & Löfgren Ã…sa & Thomas Sterner, 2004. "Political Economy Obstacles to Fuel Taxation," The Energy Journal, , vol. 25(3), pages 1-17, July.
    • Handle: RePEc:sae:enejou:v:25:y:2004:i:3:p:1-17
    DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-1
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    References listed on IDEAS

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    1. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
    2. Fredriksson, Per G, 2001. "How Pollution Taxes May Increase Pollution and Reduce Net Revenues," Public Choice, Springer, vol. 107(1-2), pages 65-85, April.
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    Cited by:

    1. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    2. Shanjun Li & Joshua Linn & Erich Muehlegger, 2014. "Gasoline Taxes and Consumer Behavior," American Economic Journal: Economic Policy, American Economic Association, vol. 6(4), pages 302-342, November.
    3. Agostini, Claudio A. & Jiménez, Johanna, 2015. "The distributional incidence of the gasoline tax in Chile," Energy Policy, Elsevier, vol. 85(C), pages 243-252.
    4. Choi, Jun-Ki & Bakshi, Bhavik R. & Hubacek, Klaus & Nader, Jordan, 2016. "A sequential input–output framework to analyze the economic and environmental implications of energy policies: Gas taxes and fuel subsidies," Applied Energy, Elsevier, vol. 184(C), pages 830-839.
    5. Andrew C. Chang & Linda R. Cohen & Amihai Glazer & Urbashee Paul, 2021. "Politicians Avoid Tax Increases Around Elections," Finance and Economics Discussion Series 2021-004, Board of Governors of the Federal Reserve System (U.S.).

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