Price Effect of Domestic Oil Tax Under Vertically Related Market Structure: Evidence from the United States, EU and Japan

Domestic oil tax influences not only consumer price, but also oil company's bid–ask spread and international oil price via vertically related markets. In order to examine oil tax price effects, a random‐effect variable‐coefficient model is introduced and estimated based on data from 1970 to 2010. Results show that domestic oil taxes in major oil‐importing countries are shouldered by both international and domestic markets, with the latter including the oil companies and consumers in the importing country. However, the impacts of oil taxes on domestic consumer prices can be quite different, with relatively weak consequences in the United States, and significantly positive and strong influence in the European Union and Japan.