A comparison of Hausman's and Breslaw–Smith's methods in estimating consumer welfare loss because of fuel taxes

Abstract

AbstractIn this paper, we investigate the welfare effect of US gasoline consumption caused by fuel taxes. Using two different economics approaches – the Hausman method and the Breslaw and Smith method – in measuring consumer welfare loss, we calculate compensating variation (CV) and the corresponding dead weight loss (DWL) assuming there are changes in motor gasoline tax. Our analysis shows that tax revenue, CV and DWL increases as motor gasoline tax increases, but the social welfare loss measured in DWL increases far more rapidly than the other two.