Pump shock: Study Finds Surprising Market Impact Of Gas Tax Increase

Increasing the gas tax does not result in a commensurate penny-to-penny increase in the retail price motorists pay at the pump, a study of the market impacts of five state gas tax increases enacted in 2013 found.

The analysis, by Dr. Alison Black, chief economist for the American Road & Transportation Builders Association (ARTBA), found, on average, the price for a gallon of regular gasoline the day after a state gas tax increase goes into effect only reflects about 22 percent of the new levy. A month after enactment, only about a third of the levy shows up in the pump price, she says, and thereafter, it is not a significant retail price factor.

The study also found that since 2005 the average weekly price of gasoline nationally has fluctuated, on average, five cents per gallon. Black says a modest increase in the federal gas tax rate to restore the purchasing power of the user fee—last adjusted in 1993—would likely be “lost” in the week-to-week price fluctuation experienced at the pump.

Black used national and state-specific daily gas price data obtained from the U.S. Energy Information Administration (EIA) and the Oil Price Information Service, one of the world’s most comprehensive sources for petroleum pricing information. The study looked at gas tax retail impacts in Massachusetts, Maryland, Pennsylvania, Vermont and Wyoming.

The research found that one year after enactment of a state gas tax increase, the average price for a gallon of regular had dropped, on average, 3.7 percent below the market price the day before the tax increase went into effect. Over the same time frame, the average national price had dropped 3.3 percent.

The study also involved development of a fixed effects econometric model to empirically analyze the state market impacts resulting from the 19 one-time and variable rate gas tax changes that occurred in 13 states during 2013. The results from that analysis also support the conclusion that only a portion of any gas tax rate increase—or decrease—is reflected in the daily retail price of gasoline.

Black noted that when the federal gas tax was last adjusted—in October 1993—EIA data show the U.S. average retail price for all grades of gasoline was $1.045 per gallon the week before the 4.3 cents per gallon increase went into effect. The retail price of gasoline increased to $1.047 the week of the adjustment. Although retail prices did go up in the next three weeks, they decreased to $1.036 cents per gallon by the first week of December.

According to the EIA, the four factors that drive the retail pricing of gasoline are the price of crude oil, refining costs and profit margins, retail and distribution costs and profit margins, and taxes. The agency says the price of crude oil, refining costs and profit margins drive most of the variability in pump prices.

Read the full analysis at artba.org/gettingbeyondgridlock/gastaxmarketimpactstudy. For additional information and context on the gas tax debate at the federal level, visit tmaw.org.

Established in 1902, Washington, D.C.-based ARTBA is the “consensus voice” of the U.S. transportation design and construction industry before Congress, federal agencies, the White House, news media and the general public.

To read today’s automotive/motorsports op-ed, news and information please visit PRRACEwire, or follow us on Twitter at PRRW – Twitter, or PRRACEwire.

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