Monday, June 27, 2022

A Gas Tax Holiday

Read Prof Mankiw's take on the proposal of a temporary reduction in gasoline tax here.

According to him, the tax break might not be a good idea because:

1.  An increase in demand will increase inflation.

2. Supply is relatively inelastic. Therefore, producers gain the benefits from the tax cut.

3. The existing gasoline tax is below optimal Pigovian level. If people drive more, negative externalities        (pollution) will exacerbate.










Image credit: Geckoandfly

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