Retail Fuel Price Stabilization and Revenue Generation of Dynamic Taxation Policy

Abstract

The Carnegie Endowment for International Peace (CEIP), through its Leadership Initiative for Transportation Solvency, in 2011 released Road to Recovery: Transforming America's Transportation, a report that proposed a new revenue mechanism to fund a reformed transportation program fully. The report recommends that Congress couple a per barrel oil fee with a variable, countercyclical gas tax. This paper discusses the dynamic impacts of CEIP's revenue policy on household travel behavior, revenue generation for the federal trust fund, energy consumption, equity, and greenhouse gas (GHG) emissions and air pollution at the national level from 2008 to 2010. The analysis developed econometric models: a multiple vehicle miles traveled (VMT) regression model and a discrete vehicle ownership model. Model results showed that the CEIP revenue proposal could fill the revenue shortfall regardless of the world oil price. During the historic study period of 2008 to 2010, the CEIP policy would have collected up to more than double the federal revenue. At the same time, households would have increased their VMT by as much as 1.8% when oil prices peaked, and reduced their VMT by up to 8.6% when the crude oil price dropped to the lowest point. It is estimated that, without any investments or revenue recycling, lower-income households would have experienced a 0.45% to 0.5% reduction in consumer surplus changes measured as a percentage of income and higher-income households would have experienced a 0.06% to 0.1% reduction. Finally, it is estimated that the CEIP policy would have reduced air pollution and GHG emissions by an average 4% to 4.35% for different pollutant types.