Inderscience Publishers

An assessment of the aggregate impacts of the proposed reduction in the motor fuels tax in the United States

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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.

Keywords: excise tax reductions, general equilibrium model, motor fuel tax, United States, USA, government revenue

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