Marketplace Scratch Pad

Taking the spikes out of gasoline

Scott Jagow Jun 15, 2009

After our recent experience with $150 oil, it’s pretty nerve wracking to see oil floating back up. It’s around $70 a barrel now. There is a way to take the jitters out of oil prices, and that is with a gasoline tax.

James Surowiecki argues for a gas tax in the latest edition of the New Yorker:

Expensive gas often has a psychological impact as well as a material one. Although there is no one-to-one correlation between gas prices and consumer confidence, a 2007 study by the economists Paul Edelstein and Lutz Kilian showed that, historically, sharp spikes in oil prices have sent consumer confidence plummeting, and have led to outsized cutbacks in general consumer spending.

Surowiecki’s solution is to phase in a gas tax that’s designed to keep the price of gasoline constant. So, the tax would go up when gas prices fell, and the tax would be lowered when gas prices climb.

There are other arguments for a hefty gasoline tax (less dependence on foreign oil, encourage innovation, etc), but let’s focus on this one — taking the spikes and plunges out of gas prices. The plunges are nice, but…

My poll question is: Would you prefer gasoline to always be a fixed price? And where would you set it?

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