Should Environmentalists Support the Gasoline Tax?

Taxes on gasoline and diesel reduce vehicle travel by making driving more expensive, which is known as the price effect. But fuel tax revenue is used to build and widen urban highways, inducing more driving, which is the capacity effect. We have shown that in the United States, the capacity effect from 1981 to 2021 was more than five times greater than the price effect. As the rise of electric vehicles forces policymakers to consider replacing or supplementing fuel taxes, our findings highlight the need to decouple the two functions—revenue and environmental—of taxes on driving. The use of gasoline taxes to fund highway capacity expansion undermines their environmental role.