Abstract
This paper presents an analysis of the effects of jet fuel taxes on air traffic, employment and emissions using a difference-in-difference design. These findings are relevant, as US airports identify how to respond to revenue shortfalls and support local employment in the recovery after Covid-19. Jet fuel tax cuts are considered pro-growth by airlines and stakeholders, however, limited research documents the impacts on airline operations, employment, and emissions, which is an increasing issue given growing societal concerns about aviation sustainability. This study provides an analysis of the effects of changes in jet fuel taxes on air travel, employment, and the environment, using a difference-in-differences design based on data from major US airlines at several US hubs. Results suggest that a jet fuel tax cut increases air traffic by 0.2% on average but fades within a year. The direct effect on air transportation employment is insignificant, as is the effect on total employment. The estimated effect on pollution is an increase of over 1% in CO2, CH4, and N2O emissions. These findings illustrate the precarious balance between air transport growth, local employment, and environmental concerns, and may aid policymakers as they consider potential changes to jet fuel taxes.
Highlights
As global air travel grew steadily in the last decade, and as policies will soon be developed to support recovery after Covid-19, it is important to balance the need for air travel to support passenger and cargo mobility with associated societal costs and benefits for airlines, airports, and the community
X is a matrix of covariates to increase the precision of our estimates and includes income per capita, population, trade in the region, airport facilities costs, number of runways, recession indicator, and airline market concentration in that region calculated by the Herfindahl-Hirschman Index (HHI)
The average employment was higher in the control airport regions, but the mean did increase for the treatment airport in the post-tax cut period
Summary
As global air travel grew steadily in the last decade, and as policies will soon be developed to support recovery after Covid-19, it is important to balance the need for air travel to support passenger and cargo mobility with associated societal costs and benefits for airlines, airports, and the community. This study contributes to the ongoing debate surrounding jet fuel taxes by providing an analysis of a jet fuel tax policy change, the effect on key societal metrics to include air traffic, employment, and greenhouse gas emissions at a major US hub airport.
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