THE IMPACT OF THE PROPOSED REDUCTION IN THE MOTOR FUELS EXCISE TAX INTHE UNITED-STATES

The analysis in this paper examines the impact of reducing the excise tax on gasoline and diesel fuel on the United States economy, The anal ytical approach used in the analysis consists of a computable general equilibrium model composed of fourteen producing sectors, fourteen con suming sectors, six household categories classified by income and a go vernment. The effects of a 4.3 cents per gallon reduction in the excis e tax on gasoline and diesel fuel on prices and quantities are examine d. The results suggest, for example, a decrease in the tax would resul t in higher output by the producing sectors (by about $2.86 billion), a expansion in the consumption of goods and services (by about $3.48 b illion), and an increase in welfare (by about $3.59 billion). The gove rnment would realize a decrease in revenue of about $2.37 billion. Whe n subjected to a sensitivity analysis, the results are reasonably robu st with regard to the assumption of the values of the substitution ela sticities. (C) 1997 by John Wiley & Sons, Ltd.