Case Detail

Case Summary

The U.S. Gasoline Tax: Time for a Change

Case Number: 5-409-751, Year Published: 2011, Revision Date: December 04, 2013

HBS Number: KEL517

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Authors: David Besanko; Saahil Malik; Vidhyashankar Balasubramanian

Key Concepts

Gasoline Tax, Motor Fuel Tax, Price Elasticity of Demand, Price Elasticity of Supply, Supply, Demand, Externalities, Excise Tax, Pigouvian Tax

Abstract

Although the federal gasoline tax played multiple roles in financing surface transportation infrastructure in the United States, experts did not agree on the tax’s purpose. Some argued that it was essentially a fee for users of the nation’s federally supported highways. Others suggested that it should play a more prominent role in environmental, energy, and transportation policy by correcting for driving-related externalities. Still others suggested that it should be used to reduce the federal budget deficit. Finally, the tax itself had remained at the same level since 1993, and with the Highway Trust Fund virtually insolvent, many experts believed it was time for an increase. The case presents a background on the U.S. federal gasoline tax, an overview of the market for gasoline in the United States, and survey of gasoline taxes in U.S. states as well as several other countries around the world.

Learning Objectives

The case can be used to discuss the incidence of the gasoline tax, as well as its role as a Pigouvian tax to deal with negative externalities related to gasoline consumption and driving. There is sufficient data in the case to enable students to analyze the incidence of the federal gasoline tax and to determine the socially efficient level of the tax in light of externalities related to gasoline consumption and driving.

Number of Pages: 20

Extended Case Information

Teaching Areas: Economics

Geographic: United States

Industry: Government

Organization Name: National Surface Transportation Infrastructure Financing Commission

Organization Size: Large

Year of Case: 2012