An assessment of the impacts of energy taxes

Abstract

This paper examines the impact of an increase in the gasoline tax and the imposition of a tax on crude oil and natural gas on the United States economy. The analytical approach used in the analysis consists of a general equilibrium model composed of 12 producing sectors, 13 consuming sectors, six household categories classified by income, and a government. The effects of a 10 cents per gallon and a 25 cents per gallon increase in the tax on gasoline and the impact of a $1.00 per barrel and a $5.00 per barrel tax on crude oil and natural gas on prices and quantities are examined. The results are revealing. For example, a 10 cents per gallon tax increase on gasoline would result in lower output by the producing sectors (by about $5.795 billion), lower consumption of goods and services (by about $5.910 billion), and a reduction in welfare (by about $7.607 billion). The government would realize an increase in revenue of about $4.970 billion. In the case of a $1.00 per barrel tax on crude oil and natural gas, there would be lower output by the producing sectors (by about $5.238 billion), lower consumption of goods and services (by about $5.093 billion), and a reduction in welfare (by about $4.992 billion). The government would realize an increase in revenue of $3.964 billion.