Bryan Caplan  

Bait and Switch: The Cynic's Argument for Gas Tax Cuts

PRINT
Economists under-represented?... Jeff Sachs Then and Now: Low G...

Lots of economists in the blogosphere have been arguing about the effects of cutting gas taxes on the price of gas. Here's James Hamilton's summary, which ends with the following:

[E]lasticities are never really zero, and are easy to underestimate if you don't think things through. Notwithstanding, if we have the misfortune to find ourselves again in a situation where supply disruptions do require an immediate and drastic reduction in gasoline consumption, I am sufficiently pig-headed to offer the same policy advice then that I offered on September 1: I do not believe that cutting gasoline taxes is a sensible policy response to that kind of problem.

Now I really want to convince him! Here's my best shot:

In an energy crisis, politicians propose all kinds of crazy policies: anti-gouging enforcement, price controls, rationing, you name it. It's a beautiful illustration of what Yes, Minister calls "Politicians' Logic": "Something must be done, this is something, therefore we must do it."

Bottom line: No one is going to listen to the politician who says "Do nothing." Under the circumstances, I can't think of a single politically viable policy that would be better than cutting the gas tax. Maybe it would mildly reduce the price of gas. But even if supply is so inelastic that 100% of the tax cut goes to suppliers, it is easy to overlook a big social benefit: Tax cuts have a good chance of politically crowding out price controls and worse.

Bait and switch? Guilty as charged.

Cynical? I suppose.

Common sense? Yes.


Comments and Sharing





TRACKBACKS (9 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/357
The author at William J. Polley in a related article titled Bryan Caplan gets cynical writes:
    Bryan Caplan responds to James Hamilton's post. Bottom line: No one is going to listen to the politician who says "Do nothing." Under the circumstances, I can't think of a single politically viable policy that would be better than cutting... [Tracked on September 12, 2005 11:52 PM]
The author at Indefinite Articles in a related article titled Humorous Economics post of the day writes:
    Bryan Caplan from: The Cynic's Argument for Gas Tax Cuts In an energy crisis, politicians propose all kinds of crazy policies: anti-gouging enforcement, price controls, rationing, you name it. It's a beautiful illustration of what Yes, Minister calls "... [Tracked on September 13, 2005 6:40 AM]
The author at The Club for Growth Blog in a related article titled Gasoline Prices writes:
    I like Bryan Caplan’s idea on affecting gasoline prices. He suggests that in order to crowd out possible price controls and other foolish political responses to Hurricane Katrina, we need to cut the gas tax. Clever…... [Tracked on September 13, 2005 7:52 AM]
COMMENTS (5 to date)
Eric writes:

Suppose that they cut gas taxes $0.30/gallon but that the price at the pump only dropped $0.15/gallon because of inelasticities. Would the effect be to mitigate or accentuate calls for other forms of controls given that the public has zero understanding of tax incidence?

Mike Linksvayer writes:

Increasing gas taxes may be politically viable if pitched well ("we all have to sacrifice"), would not be doing nothing, and may be better than price controls.

Timothy writes:

Ye olde political economy at work.

Chris Bolts writes:

While true that increasing gas taxes should curtail consumption, Mike, in America it is almost certain to be political death for the politician who suggests it. A price control sounds much better to the the masses even if the economic rationale makes sense.

Paul Bonneau writes:
Bottom line: No one is going to listen to the politician who says "Do nothing." Under the circumstances, I can't think of a single politically viable policy that would be better than cutting the gas tax.

So you're suggesting that any legislator who votes against a gas tax cut is going to be thrown from office? I find this implausible, except for the case where he is otherwise in trouble.

Politicians don't have to say "do nothing". They just have to vote the right way on the bills. If people call them on it, they just have to ask those people how road maintenance is going to be funded - absent a complete sell-off of the roads to the private market. It's not hard to make the case that those who use the roads should fund them. That's what the gas "tax" is, a user fee.

Comments for this entry have been closed
Return to top