Tax holidays and the heterogeneous pass-through of gasoline taxes

Abstract

The pass-through of gasoline taxes to retail prices plays a vital role in determining the extent to which a fuel tax suspension policy provides financial relief to consumers. Given the increased interest in utilizing such “tax holidays” to mitigate the unprecedented rise of gasoline prices in 2022, it is important to obtain location-specific pass-through estimates that will inform future similar policy efforts. Using daily city-level data from a sample of 108 cities in 15 East Coast states and the District of Columbia during the period February 1, 2022-June 30, 2022, I estimate an average pass-through rate of gasoline taxes of 79%. My subsequent analysis reveals heterogeneity in pass-through across locations and explores supply constraints, market isolation, and spillover effects as possible contributing factors to this heterogeneity.