Lawmakers in both Maryland and Georgia have officially suspended the state gas tax in an effort to help drivers over the coming weeks. Politicians have chosen a politically popular policy rather than addressing a more serious underlying issue.
Another component of this that works against the goal of lowering prices is that if the tax is removed that acts as a demand shifter. If demand increases then the market price will rise and poof! there goes the savings, or at least some of the savings. Oh, and then there's the hole in the infrastructure budgets of states this will create. Those gas taxes are used to fill the potholes, and politically, there isn't much that angers the citizenry like crappy roads. Maybe states are thinking they can grab more of the federal infrastructure spending, but in the meantime, they'll have to cut some projects. Georgia may not have to worry as much as Maryland, but western Maryland gets plenty of awful weather.
Can you comment more on the tax incidence? What this shows is the gas stations passed on 86% of the savings to customers. If we are assuming gasoline is inelastic, wouldn't we expect a much lower % to be passed on? I wonder why this happened. Competition? Pressure? Marketing? Maybe it's not as inelastic as we think?
Another component of this that works against the goal of lowering prices is that if the tax is removed that acts as a demand shifter. If demand increases then the market price will rise and poof! there goes the savings, or at least some of the savings. Oh, and then there's the hole in the infrastructure budgets of states this will create. Those gas taxes are used to fill the potholes, and politically, there isn't much that angers the citizenry like crappy roads. Maybe states are thinking they can grab more of the federal infrastructure spending, but in the meantime, they'll have to cut some projects. Georgia may not have to worry as much as Maryland, but western Maryland gets plenty of awful weather.
Can you comment more on the tax incidence? What this shows is the gas stations passed on 86% of the savings to customers. If we are assuming gasoline is inelastic, wouldn't we expect a much lower % to be passed on? I wonder why this happened. Competition? Pressure? Marketing? Maybe it's not as inelastic as we think?
Thanks again for writing.