Keywords: excise tax reductions, general equilibrium model, motor fuel tax, United States, USA, government revenue
An assessment of the aggregate impacts of the proposed reduction in the motor fuels tax in the United States
The analysis in this paper examines the impact of reducing the excise tax on gasoline and diesel fuel on the United States economy. The analytical approach used consists of a computable general equilibrium model composed of fourteen producing sectors, fourteen consuming sectors, six household categories classified by income and the government. The effects of a 4.3 cents per gallon reduction in the excise tax on gasoline and diesel fuel on prices and quantities are examined. The results suggest, for example, that a decrease in the tax would result in higher output by the producing sectors (by about $2.86 billion), and expansion in the consumption of goods and services (by about $3.48 billion), and an increase in welfare (by about $3.59 billion). The government would realise a decrease in revenue of about $2.37 billion. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities.