Gas Taxes and Foreign Policy
By Arnold Kling
some observers have argued that if gasoline taxes were increased and other taxes decreased so that overall revenue remained constant, a gasoline tax hike would provide a “double dividend.” That is, it would reduce the negative externalities associated with gasoline consumption while also reducing the welfare losses associated with taxation. Even if a gasoline tax created no net benefits, as long as the welfare losses associated with a gasoline tax were smaller than the welfare gains associated with cuts in other more distortionary taxes, a gasoline tax hike would make economic sense.
But if gasoline taxes produce such benefits, a tax on vehicle miles traveled would be even better because the demand for vehicle miles traveled is even more inelastic than demand for fuel.81 Given that monitoring vehicle miles traveled is quite simple and not particularly costly, analysts who embrace the “double dividend” argument have no good reason to prefer fuel taxes over taxes on vehicle miles traveled.
They call for abolishing the gas tax. But what should replace it? The logic of their argument is that the gas tax should be replaced with a tax on vehicle-miles traveled or a tax on auto emissions. But they do not call for either of those tax increases. This undermines the credibility of the paper, which otherwise makes at least one valid point: a gasoline tax is a feeble weapon in the war against terrorism.
On the other hand, after reading Paul Collier’s The Bottom Billion, I think that the case for my wife’s energy policy–“just take the oil”–is strengthened. Collier says that underdeveloped countries are hampered by bad governance, which is compounded by the “resource curse.” He writes (p. 46)
We found that resource rents gradually erode checks and balances. This leaves electoral competition unconstrained by the niceties of due process. Political parties are freed to compete for votes by means of patronage…
Some democracies are long on electoral competition and short on checks and balances…Whereas electoral competition significantly worsened the contribution of of resource rents to growth, restraints significantly improved it.
Collier thinks that some countries are so poorly governed that military intervention may be justified. He thinks that countries that are resource-rich tend to be “cursed” by corrupt government. My thinking (not Collier’s) is that we should connect these two ideas.
Suppose that we used military force to take over oil, keeping it in the hands of private companies and taking it out of the hands of governments. This would not only serve my wife’s purpose of keeping oil money away from terrorists. As I read Collier, such a policy would improve the governance and economic development of the countries afflicted with the “resource curse.” We would be doing the people (as opposed to the governments) a favor.