Incidence of gasoline taxes in Canada: an event study approach to estimating pass-through

Loading...
Thumbnail Image
Date
2024-12-11
Authors
Vortia, Pooja
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract

This study investigates the city-level pass-through rates of provincial and carbon tax changes on wholesale and retail gasoline prices in Canada from 1998 to 2024. Focusing on tax increases and decreases, the analysis measures pass-through rates to explore the impact of tax policies on gasoline prices across Canada. This study also analyses the tax incidence of medium/small cities and large cities separately to examine regional pass-through rates. Data is collected from Kent Marketing Ltd and Statistics Canada to create panel datasets for an event-based difference-in-difference model. Event plots show an immediate response in retail gasoline prices following tax changes; however, retail prices begin to adjust even before the implementation of tax policies. The estimated pass-through rate of gasoline tax increases on retail prices is 100% in the 9-week window and 88% in the 17-week window. For tax decreases, the pass-through rates are even higher, at 120% in the 9-week window and 140% in the 17-week window. The analysis also reveals the significant impact of tax changes on retail prices in medium/small cities and large cities. However, the study finds that the impact of gasoline tax changes on wholesale prices is statistically insignificant for both the 9-week and 17-week windows. Additionally, results from the 9-week window gasoline tax analysis without fixed effects and covariates are insignificant, underscoring the importance of accounting for these factors. In conclusion, the findings of this study emphasize the crucial role of provincial and carbon tax policies in shaping retail gasoline prices, while highlighting the limited impact on wholesale prices in Canada.

Description
Keywords
Gasoline tax incidence, Pass-through rate, Retail and wholesale price, Provincial and carbon tax, Gasoline price in Canada
Citation