Monday, February 9, 2015

Bread & Circuses vs. Getting the Prices Right

Two researchers just published an analysis showing something that many casual observers have long realized about the political challenges of using taxes to address externalities. Liddle & Lung (2015) find that countries whose citizenries consume a lot of fuel tend to tax fuel at lower rates than countries with relatively lower consumer demand for fuel. In other words, the nations having a greater need to "get the prices right" through some form of consumption tax are, politically speaking, less likely to pursue the types of taxation that economists would recommend.

The paper is:

Liddle, Brant and Lung, Sidney, The Endogeneity of OECD Gasoline Taxes: Evidence from Pair-Wise, Heterogeneous Panel Long-Run Causality Tests. Transportation Research A: Policy and Practice, 73: 31-38, 2015. DOI: 10.1016/j.tra.2014.12.009; available at SSRN:

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