What A Gas Tax Can’t Do, Ctd

Apr 27 2011 @ 3:03pm

Alex Tabarrok keeps the debate alive:

[T]he IMF estimates are below others in the literature which estimate an elasticity of 0.2 to 0.3, meaning that a 10% increase in price would reduce demand by 2 to 3 percent, still small but three times the IMF estimates. Moreover, the US estimates tend to be higher still in the range of 0.4-0.5. All of the estimates are certainly low so we are not going to solve the climate change problem overnight with a tax on oil.  I’m not sure where the surprise is, however. Oil is necessary for civilization–given today’s technology–so people aren’t going to give it up easily.

Adam Ozimek dives deeper into the literature. McArdle highlights another negative. She writes that "such taxes are almost always regressive, and though there are various ways we could make them less so, none of them fully solve the problem."