The effects of an increase in the motor fuels excise tax on the U.S. economy

Abstract

We investigate the impact of raising the excise tax on motor fuels on the U.S. economy in general and the agricultural sectors in particular. The approach used in the analysis consists of a computable general equilibrium model composed of 14 producing sectors, 14 consuming sectors, six household categories classified by income, and a government. The results suggest that a $0.50 per gallon increase in the tax would result in lower output by the producing sectors by about 0.43%, a reduction in the consumption of goods and services by about 0.75%, and a reduction in welfare by about 1.10%. The government would realize an increase in revenue of about 2.2%. The agricultural sectors would be minimally impacted. Output in the program crops sector will rise by 0.10%, output in the livestock sector will increase by 0.18%, output in the all other agricultural commodities sector will expand by 0.01%, and output in the forestry sector will rise by 0.03%. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities.