Estimating impacts of a vehicle mile tax on Oregon households

Abstract

Oregon’s gasoline tax no longer serves as an economically efficient revenue source due to increasing fuel efficiency and the emergence of alternative fuels. In response to this problem, the Oregon Department of Transportation is exploring alternatives to the gasoline tax. Among the most promising alternatives is a flat-rate vehicle mile tax. Critics argue that a flat-rate fee will discourage the purchase of fuel efficient vehicles and may impact social groups differently, placing a heavier burden on lower income and rural households. This paper estimates the socio-economic impacts of the proposed policy based on income and location using an Ordinary Least Squares (OLS) and Three-Stage-Least Squares (3SLS) model and Oregon data from the 2001 National Household Travel Survey. Suits Indices indicate both the gasoline and VMT taxes are, overall, regressive. The OLS model suggests the VMT fee will be more regressive than the gasoline tax, while the 3SLS model suggests the VMT fee will be slightly more progressive than the gasoline tax. The overall impact of a policy shift depends largely the model specification chosen. Furthermore, the 3SLS results appear to be consistent with public concerns. The average household will reduce its average fuel efficiency, however, the reduction in annual miles driven may offset some of the environmental concerns.