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America’s Gas Tax Falls Further Behind OECD Peers When Controlling for Exchange Rates

3 min readBy: Garrett Watson

Across the Organisation for Economic Cooperation and Development (OECD), excise taxes on gasoline often fund infrastructure projects. The United States uses gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. revenue to support the highway trust fund, which pays for transportation projects at the federal, state, and local levels. This conforms to the benefit principle, as users of infrastructure are directly supporting it through the levy on gasoline. However, America’s gas tax is the second lowest relative to other countries in the OECD, especially after controlling for exchange rate fluctuations over time.

When comparing the change in taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es across countries in American dollars, it is important to adjust for changes in exchange rates over time. This isolates the effect of a statutory tax change from the change in the value of a local currency relative to the American dollar.

When controlling for exchange rate fluctuations, America’s gas tax since 2013 has fallen behind its peers in the OECD, despite the appearance of a drop in OECD member country gas taxes in that time period before controlling for exchange rates.

In 2017, the average gas tax rate across OECD was $2.24, down about 15 percent from $2.62 in 2013. Thirty countries experienced declines in their gas tax levies in American dollars. Since 2013, the American dollar has appreciated in value relative to other currencies, including the currency of many OECD member countries, the Euro. This has the effect of reducing the value of a nation’s gas tax levy in American dollars, making reductions in gas taxes across the OECD look larger in magnitude than they were.

For example, Turkey’s gas tax was about 8.25 Turkish lira in 2013 and rose to about 9 Turkish lira in 2017. However, over that time, the Turkish lira fell in value relative to the dollar. In American dollars, Turkey’s gas tax declined from $4.32 in 2013 to $2.82 in 2017. When we control for the exchange rate fluctuation, however, Turkey’s gas tax was $4.71 in 2017 using 2013 exchange rates.

After controlling for exchange rates, only 11 countries saw a fall in gas tax rates between 2013 and 2017. Nineteen countries experienced higher gas taxes, including a 15 percent increase in Sweden and an 18 percent increase in Iceland. Canada, Israel, and Slovakia reduced their gas taxes in their local currencies over that time period. The average gas tax in the OECD in 2017 was $2.69 after controlling for exchange rate changes, or about 20 percent higher than the average rate when not holding exchange rates constant.

OECD Gas Excise Tax Rates (Per Gallon) 2013 and 2017 using 2013 exchange rates

Note: 2017 gas excise taxes are converted from the local currency to American dollars using the exchange rate in 2013 as reported by the OECD in the “Consumption Tax Trends 2018” report. This controls for the fluctuation in exchange rates between 2013 and 2017. Source: “Consumption Tax Trends 2018,” Organization for Cooperation and Economic Development

Country Tax per Gallon, 2013 Tax per Gallon, 2017
Australia $1.40 $1.49
Austria $2.46 $2.48
Belgium $3.10 $3.08
Canada $1.25 $0.94
Chile $1.93 $2.23
Czech Republic $2.50 $2.50
Denmark $2.95 $3.08
Estonia $2.12 $2.58
Finland $3.26 $3.49
France $3.07 $3.27
Germany $3.29 $3.27
Greece $3.37 $3.52
Hungary $2.08 $2.07
Iceland $1.97 $2.32
Ireland $2.95 $2.94
Israel $4.20 $3.17
Italy $3.67 $3.66
Japan $2.16 $2.17
Korea $2.69 $2.69
Luxembourg $2.31 $2.32
Mexico $0.00 $0.00
Netherlands $3.79 $3.97
New Zealand $2.01 $2.08
Norway $3.67 $4.02
Poland $2.01 $2.01
Portugal $2.95 $3.26
Slovakia $2.57 $2.54
Slovenia $2.76 $2.83
Spain $2.35 $2.35
Sweden $3.10 $3.57
Switzerland $2.99 $2.99
Turkey $4.32 $4.71
United Kingdom $3.44 $3.44
United States $0.53 $0.56
Average OECD $2.62 $2.69

After controlling for exchange rate changes, the United States’ gas tax remains the second lowest of countries in the OECD. In 2017, the American gas tax rate was about one-fourth of the average OECD gas tax before controlling for exchange rates. After holding them constant, the U.S. gas tax is only about 21 percent of the OECD average. This data shows that the U.S. is an outlier among the OECD and remains an outlier when controlling for exchange rates.

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