Friday, April 25, 2008

A Pox on All Three (but the biggest, grossest on McCain)

All three candidates are pandering about gasoline prices. McCain is the worst, having called for a gas tax holiday in the summer, when pollution is at its worst.

Now comes a story from Businessweek that suggests that, contrary to the findings in David Austin's work, higher gas prices are leading to less driving. It would be hard to list all the policy benefits that result from this.

We do need to be careful about the association here--people may be driving less because they are less likely to be working, or because they are not going shopping or out to eat as much. If the reduction is driving owes more to the likely recession than to the price of gasoline, the effect will not be permanent. We won't be able to figure out which it is until and unless the economy bounces back at the same time that the price of gas remains high.

The regressive nature of high gas prices is also a problem. But this would be better solved through increases in the minimum wage and/or the earned income tax credit than a reduction in the federal gasoline tax.

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