Published by EH.Net (September 2018)

Carl-Henry Geschwind, A Comparative History of Motor Fuels Taxation, 1909-2009: Why Gasoline is Cheap and Petrol is Dear. Lanham, MD: Lexington Book, 2017. xi + 241 pp. $105 (hardback), ISBN: 978-1-4985-5380-3.

Reviewed for EH.Net by Mark LeClair, Department of Economics, Fairfield University.

Carl-Henry Geschwind provides a detailed examination of the rise of gasoline taxes in four nations, the U.S., U.K., Germany and New Zealand, with the latter included to illustrate how a largely agrarian economy has dealt with the issues of fuel levies. The author notes that the impression that the magnitude of fuel taxes are a result of concern for the environment, or a desire to support public transport, is largely incorrect. Rather, the prevailing tax rates on gasoline and petrol are largely the result of decades of compromises on how to acquire the revenue needed to support general government spending. He also notes that the cost of gasoline is a function not just of direct taxation, but also of duties applied to imported petroleum. Restricting the analysis to four nations allows Geschwind to provide details that would not be possible if a larger sample of nations were scrutinized. It does, however, also limit the universality of the narrative.

The author examines five distinct periods, starting with the early years after the introduction of the automobile: The origins of the gasoline tax (1909-29), the Great Depression and World War (1929-49), the boom years (1949-69), oil shocks and economic stagnation (1969-89) and the “Age of Global Warming” (1989-2009). During the first period, with the slow but steady incorporation of the automobile into the economies of the four nations, gasoline taxes were simultaneously viewed as a means of providing money for needed transportation infrastructure and balancing government budgets. In the U.S., the interests of farmers and fisherman, at that time major political forces, prevented the imposition of higher state taxes on fuel (see pp. 28-31), arguing that such a move would be highly detrimental to their livelihoods. German tax policy largely separated road funding from fuel taxation (p. 20), instead looking to gasoline levies as a means of responding to a fiscal crisis in the early twentieth century.

The onset of the Great Depression led to budgetary crises in most developed nations as tax revenue dried up. Germany utilized a mineral oil duty as a means of closing its budget gap; a policy that resulted in muted protest when compared to the public’s response to a beer tax instituted at the same time (p. 58-59). Likewise, the UK turned to petrol taxes to offset declining tax revenue. A much more intractable problem occurred after the beginning of the Second World War: Driving was strictly limited due to the rationing of fuel, particularly in the UK. Without motorists behind the wheel, gasoline/petrol taxes were of little use as a source of revenue.

The post-war boom years led to a rapid expansion of automobile ownership (pp. 94-95). This was supported by a steep rise in global oil production and the resulting depression of prices. The real pre-tax price of fuel was lower in 1969 than it was in 1949. Germany, the UK and the U.S. all used this opportunity to raise gasoline/petrol taxes to fund budgetary shortfalls. A petroleum shortage in the UK, caused by an inability of the British to obtain sufficient dollars to secure imports, caused a re-imposition of driving restrictions in 1956. In the U.S., the primary driver of tax increases in the 1950s was the building of the interstate highway system.

When Geschwind turns to a discussion of the energy crisis of the 1970s, he notes that tax increases in the U.S. were proposed as a means of reducing consumption and imports, despite the fact that this would only reinforce the negative effects on growth already occurring as a result of the rise in the price of petroleum. Domestic opposition led to the imposition of an import levy rather than a tax at the pump, although the impact on drivers was similar. At this point, gasoline taxes were, for the first time in the U.S, being tied to concerns about demand. Similarly, a foreign exchange crisis in the UK in 1975 led to the imposition of increased taxes on motor vehicles and a small increase in the petrol tax. Omitted from the narrative is a discussion of what happened when Britain itself became a major oil producer, resulting in a fundamental change in the offsetting nature of import levies and petrol taxes.

As fears about carbon dioxide emissions grew in the late 1980s, taxes on fuel became part of a discussion about how to reduce demand, rather than a debate about how to use such taxes to raise revenue. As argued above, it is only recently that taxation became a tool to both reduce demand (and the environmental externalities that accompany consumption), and to support the use of public transportation. Americans regard European energy tax policy as a deliberate means of addressing environmental goals, yet it is only in the last thirty years or so that concerns about emissions have been the primary driver of policy. In essence, Europeans drive small cars because of past needs to secure revenue to fund general governmental expenditures.

A point not raised by the author concerns the reaction of consumers to rising taxes. Through conservation and the purchase of more fuel efficient vehicles, sales of gasoline fall as a result of rising prices. This effect may be small in the near-term (the short-run elasticity of demand for gasoline is estimated to be about 0.1), but in the longer-term demand will be significantly impacted by rising taxes. This will result in revenues falling short of expectations, and the inclination to raise levies further. Ultimately the gas tax would have to be replaced with a mileage tax to maintain the anticipated proceeds.

For those interested in the history of fuel taxation, its origins, economic impacts and subsequent interpretation in a world concerned about carbon emissions, Geschwind has provided a narrative of exacting detail that thoroughly addresses the forces behind Europe’s higher tax regime. The text is extensively and meticulously footnoted, making it a valuable resource for those interested in furthering the study of fuel use and taxation.

Mark LeClair’s publications include “Reducing Gasoline Price Variability: A Modest Proposal,” Energy Journal (2006).

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