Kalee E. Burns and Julie L. Hotchkiss
Working Paper 2023-4
This paper examines the distribution of the gasoline tax burden in the presence of increased electric vehicle adoption. Automobile manufacturers and even some states have ambitious goals to phase out gas-powered cars. However, in spite of these plans, the primary source of automobile infrastructure funding in the United States continues to be gasoline taxes. Less demand for gasoline threatens this source of revenue for maintaining roads and further shifts the burden of the tax toward consumers who can’t afford the still relatively expensive electric vehicles. The analysis here illustrates the fundamental regressivity of the gasoline tax, then simulates the distributional impact of replacing the current gas tax with a lump-sum/income tax with different assessment rules designed to replace revenue generated by the gasoline tax. For example, many states are considering switching from a gas tax to a tax based on miles driven to shore up infrastructure funding. Alternatively, the required revenue could be paid equally across income quartiles or assessed based on income. Not surprisingly, the degree of regressivity of replacing the gasoline tax depends on how the tax is assessed across the income distribution.
JEL classification: H22, Q21, D11
Key words: gas tax, incidence, consumer demand system, income distribution, equity
Any views expressed on statistical, methodological, technical, or operational issues are those of the authors and not necessarily those of the US Census Bureau, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Kalee Burns's contribution was made as part of her completed PhD studies at Georgia State University. The authors gratefully acknowledge the research assistance of Sarah Akyena.
Kalee Burns is with the Social, Economic and Housing Statistics Division of the US Census Bureau. Please address questions regarding content to Julie Hotchkiss, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree St. NE, Atlanta, GA 30309.
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