MIT prof: A gas tax cut won't bring much relief

Gas station owners are likely to benefit from cuts to federal and state gas taxes as much as, if not more than, consumers, according to a professor at MIT Sloan School of Management.

Several states are proposing to suspend their gas taxes, and presidential candidates Hillary Clinton and John McCain are recommending a summer suspension of the federal gas tax as a way of providing relief to consumers from record gas prices. Barack Obama, another presidential candidate, opposes the idea.

In a press release today, Joseph Doyle (right), the Jon D. Gruber Assistant Professor of Applied Economics at MIT Sloan, said that drivers hoping for a break from such proposals will likely be disappointed; gas prices would likely fall by significantly less than the full amount of the actual tax cut, assuming that the proposed tax suspensions become reality.

"There is a common misperception that if a state tax of 5 percent per gallon is eliminated, then the price at the pump will fall by 5 percent," Doyle said in a statement. "In fact, our research suggests that retail gas prices drop by as little as 3 percent following the elimination of a 5 percent sales tax. Given tight supply and demand conditions, the benefits of a tax holiday are shared by station owners and consumers. For the federal excise tax, we would expect a reduction in prices at the pump on the order of 10 cents."

Doyle's research was published in the Journal of Public Economics in April, noted MIT Sloan, which added that Doyle's fellow researcher on the project was Krislert Samphantharak of the University of California San Diego.
(By Chris Reidy, Globe staff)