Gasoline
How Far for a Buck?
Tax Differences and the Location of Retail Gasoline Activity in Southeast Chicagoland (w/ Mark Manuszak),
Review of Economics and Statistics
(2009), 91(4): 744-65.
Abstract: Differences in government policies often provide
variation in economic conditions that can be used to uncover primitives
governing the choices of agents. We exploit variation in taxes on gasoline and
cigarettes in adjacent political jurisdictions for northern Illinois
and Indiana
to examine consumers' trade-off between prices and travel. We develop and
estimate a simple model that relates the amount of capacity in the retail
gasoline industry to consumer locations at different distances to the tax
borders. Our results indicate that the willingness of a typical Chicagoland consumer to travel an additional mile to buy
gasoline corresponds to about 6.5¢ to 8.4¢ per gallon. According to our
estimates, the observed area of Chicago,
the jurisdiction with the highest taxes in our data, is missing approximately
40% of the capacity that would exist if taxes were equal throughout the region.
(508 Kb, January 2008)