We show that under typical conditions the simple “excess‐burden triangle” formula substantially underestimates the excess burden of commodity taxes, in some cases by a factor of 10 or more. This formula performs poorly because it ignores general equilibrium interactions—most important, interactions between the taxed commodity and the labor market. Many prior studies have shown that general equilibrium interactions affect excess burden but have not appreciated the bias associated with ignoring these interactions or the quantitative importance of this bias. We derive an implementable alternative to the simple formula. This alternative formula captures interactions that the simple formula omits; as a result it is both unbiased and usually more accurate.

With a focus on two sorts of regulation—renewable electricity and clean energy standards, and automobile fuel-economy standards—we analyze problematic interactions that arise when state policies are nested within the domain of Federal policy. Here state efforts may fail to reduce greenhouse gas emissions nationally, and may compromise cost-effectiveness. Difficulties from overlapping regulations are avoidable through price- (as opposed to quantity-) based Federal policy. We identify some potentially positive interactions between state and Federal policies, and identify rationales for state action when Federal and state policies do not overlap.

We examine the impacts of increased US gasoline taxes in a model that links the markets for new, used, and scrapped vehicles and recognizes the considerable heterogeneity among households and cars. Household choice parameters derive from an estimation procedure that integrates individual choices for car ownership and miles traveled. We find that each cent-per-gallon increase in the price of gasoline reduces the equilibrium gasoline consumption by about 0.2 percent. Taking account of revenue recycling, the impact of a 25-cent gasoline tax increase on the average household is about $30 per year (2001 dollars). Distributional impacts depend importantly on how additional revenues from the tax increase are recycled.

Distributional and Efficiency Impacts of Gasoline Taxes: An Econometrically Based Multi-market Study by Antonio M. Bento, Lawrence H. Goulder, Emeric Henry, Mark R. Jacobsen and Roger H. von Haefen. Published in volume 95, issue 2, pages 282-287 of American Economic Review, May 2005