Politicians Avoid Tax Increases Around Elections

We use new annual data on gasoline taxes and corporate income taxes from U.S. states to analyze whether politicians avoid tax increases in election years. These data contain 3 useful attributes: (1) when state politicians enact tax laws, (2) when state politicians implement tax laws on consumers and firms, and (3) the size of tax changes. Using a pre-analysis research plan that includes regressions of tax rate changes and tax enactment years on time-to-gubernatorial election year indicators, we find that elections decrease the probability of politicians enacting increases in taxes and reduce the size of implemented tax changes relative to non-election years. We find some evidence that politicians are most likely to enact tax increases right after an election. These election effects are stronger for gasoline taxes than for corporate income taxes and depend on no other political, demographic, or macroeconomic conditions. Supplemental analysis supports political salience over legislative effort in generating this difference in electoral effects.

Views of the Highway: Infrastructure Reality, Perceptions, and Politics

Transportation infrastructure such as highways and bridges requires upgrades and maintenance. In many U.S. regions, these requirements have surpassed current funding, so new solutions are needed. One obvious though imperfect source is gasoline taxes, but raising these is politically risky, regardless of need. To illuminate this conflict, we analyze data from four random-sample telephone surveys (2016–2018, n = 2,035) that asked residents in the U.S. state of New Hampshire about their perceptions of highway and bridge conditions, and support for gas tax increases. About one third of the respondents counterfactually reported that highway and bridge conditions had improved compared with 10 or 20 years ago. At the county level, subjective perceptions correlate well with actual pavement and bridge conditions. Majorities of respondents also said they would support tax increases of 5 of 10 cents, although support falls off at higher amounts. Support for a tax increase varies not only with the proposed amount, but also with individual characteristics—especially political identity. In a structural equation model, infrastructure perceptions serve as an intervening variable between ideology and tax support: if infrastructure is falsely seen as improving, that supports an ideologically favored rejection of taxes. Partisan differences in perceptions of physical conditions, noted previously in other domains such as climate change, pose an unexpected challenge in building public support for transportation infrastructure.

Gasoline Tax Increases in the American States: A Case for Responsive Taxation

This paper analyzes the determinants of legislation to increase state gasoline taxes from 1985 to 2013. It closely considers the motives of the political actors considering adoption, comparing the predictive power responsive government and excessive government theories. It finds strong evidence for responsive governments: traffic fatalities per-capita and the proportion of bridges deemed structurally deficient are among the strongest predictors of state gas tax increases. The conclusion of this paper is that gasoline tax increases in the American states represents a case of responsive taxation.

The Welfare Impact of Second-Best Uniform-Pigouvian Taxation: Evidence from Transportation

When consumers or firms don’t face the true social cost of their actions, market outcomes are inefficient. In the case of negative externalities, Pigouvian taxes are one way to correct this market failure, but it may be infeasible to tax the externality directly. The alternative, taxing a related product, will be second-best. In this paper, we show that in the presence of heterogeneous externalities and elasticities, this type of indirect tax performs poorly. In our empirical application, gasoline taxes to address pollution externalities, less than a third of the deadweight loss of the externality is addressed by second-best optimal taxes. (JEL D62, H21, H23, H71, H76, Q53, R48)

The Cost of Reducing Greenhouse Gas Emissions

Most countries, including the United States, have an array of greenhouse gas mitigation policies, which provide subsidies or restrictions typically aimed at specific technologies or sectors. Such climate policies range from automobile fuel economy standards, to gasoline taxes, to mandating that a certain amount of electricity in a state comes from renewables, to subsidizing solar and wind electrical generation, to mandates requiring the blending of biofuels into the surface transportation fuel supply, to supply-side restrictions on fossil fuel extraction. This paper reviews the costs of various technologies and actions aimed at reducing greenhouse gas emissions. Our aim is twofold. First, we seek to provide an up-to-date summary of costs of actions that can be taken now using currently available technology. These costs focus on expenditures and emissions reductions over the life of a project compared to some business-as-usual benchmark—for example, replacing coal-fired electricity generation with wind, or weatherizing a home. We refer to these costs as static because they are costs over the life of a specific project undertaken now, and they ignore spillovers. Our second aim is to distinguish between dynamic and static costs and to argue that some actions taken today with seemingly high static costs can have low dynamic costs, and vice versa. We make this argument at a general level and through two case studies, of solar panels and of electric vehicles, technologies whose costs have fallen sharply. Under the right circumstances, dynamic effects will offer a justification for policies that have high costs according to a myopic calculation.