Dan Ahn and I have a new energy brief out that takes a fresh look at oil taxes. From the introduction:
“Policymakers are confronting difficult choices [regarding tax hikes and spending cuts]…. In this context, it might be possible to reconsider oil taxes not only as an unwelcome burden, but as an alternative to something worse. We have modeled the potential consequences of substituting taxes on oil consumption for either higher non-oil taxes or reduced government spending, both as part of a larger deficit reduction package. [We show that] doing so can improve economic performance while reducing oil consumption if done right.”
The paper goes on to quantitatively explore the growth, employment, and oil consumption impacts of different ways of modifying deficit reduction packages using oil taxes. The paper is the first to look at oil taxes in the context of broader deficit packages; it’s also novel in that it looks at how oil taxes might perform in a weak economy.
In a Bloomberg View op-ed today, we explain some of the basic results, and provide some simple intuitive explanation for the paper’s conclusions that goes beyond what’s in the paper itself.