Wednesday, November 01, 2006

Gasoline Prices, Taxes and Consumption

via Foreign Policy via Greg Makiw's Blog


crush41 said...

Now how about a similar graph but with monetary standard of living measured in terms of purchasing power parity at the top?

Fat Knowledge said...


The point of the graph was just to show how greater taxes lead to a reduction in consumption.

If you are suggesting that greater gasoline taxes leads to a lower standard of living, I would say that I think GDP is more linked to total tax rate and labor market flexibility than gasoline taxes. You could devise a gasoline tax which was revenue neutral (replacing the payroll tax for example) that I don't think would have much impact on GDP.

As for what would be the optimal level of gasoline tax, one economist has put it at around $1.00 a gallon. I personally would like to see it closer to $2.00, but I give more weight to environmental impacts, traffic considerations and geopolitics. That is much lower than the rates in Europe, so if you are suggesting the tax is too high in Europe, I would tend to agree.

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