GASOLINE TAX AS A CORRECTIVE TAX - ESTIMATES FOR THE UNITED-STATES, 1970-1991

Gasoline consumption creates externalities, through pollution, road co ngestion, accidents, and import dependence. What effect would a higher gasoline tan have on the related magnitudes: gasoline consumption, mi les driven, and road fatalities? In this paper, separate models are es timated for gasoline use per mile, miles driven per driver, and fatali ties per mile driven. We use data from 50 U.S, states and DC for 1970 through 1991, with a variety of stochastic specifications. The own-pri ce elasticity of demand for gasoline is derived from projections with, and without, a higher gasoline tan, and is found to be between -0.12 and -0.17 in the short-run, and between -0.23 and -0.35 in the long-ru n. A tan of $1 per gallon would cut use by 15-20%, miles driven by 11- 12%, and fatalities by 16-18% over 10 years, while raising almost $100 billion in revenue annually.