Aggregate effects of reducing the motor fuels excise tax in the United States

The analysis in this article examines the impact of reducing the excise tax on gasoline and diesel fuel on the U.S. economy. The analytical approach used consists of a computable general equilibrium model composed of 14 producing sectors, 14 consuming sectors, 6 household categories classified by income, and a government. The effects are examined of a 4.3 cents per gallon reduction in the excise tax on gasoline and diesel fuel on prices and quantities. The results suggest, for example, a decrease in the tax would result in higher output by the producing sectors (by about $2.86 billion), an expansion in the consumption of goods and services (by about $3.48 billion), and an increase in welfare (by about $3.59 billion). The government would realize a decrease in revenue of about $2.37 billion. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities