David Henderson

The Problem with a Variable Tax on Gasoline

This is from Jim McTague, “Obama is Humbled by the Market,” Barron’s, March 24, 2012. Greg Mankiw linked to it this morning. I’m guessing that what caught Greg’s attention was the article’s advocacy of a tax on gasoline. I won’t bother revisiting that well-worn debate.

Instead, I want to focus on a paragraph that I bet Greg didn’t focus on, the one I reproduced above. I wrote about a similar proposal, a variable import fee on oil, in two articles (here and here) in the Energy Journal in 1989. A variable gasoline tax is not quite the same, but it would have a similar unintended, but completely predictable, consequence.

The argument I’m about to give rests on the assumption that the world oil market has an entity in it, OPEC, that has some market power. If you don’t believe that, then you won’t find the rest of the argument convincing. But notice that McTague does believe it. Check the quote from his article above.

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