Saturday, September 24, 2005

Gas Taxes and Political Economy

Environmental economists have convinced themselves of the benefits of raising gasoline taxes. Politicians seem to be slow to embrace this proposal. Why? New Yorker magazine’s James Surowiecki has a good explanation. The New Yorker has better cartoons and sometimes better analysis than the American Economic Review!

PUMP PRESSURE James Surowiecki on why the gas tax won’t budge.
Issue of 2005-09-26

“Of course, in political terms the gas tax’s virtues—simplicity, transparency, immediacy—are vices. Politicians prefer complex systems that allow them to satisfy particular constituencies, reward supporters, and disguise the true costs of things. And, strangely enough, voters implicitly prefer indirect taxes to direct ones. So it may be that the gas tax will remain one of those economically sensible ideas that are doomed to fail.”

This quote highlights a point that pro-economists do not devote enough attention to. When is transparency bad for policy implementation? In the sense that building coalitions to support a particular public policy may be more difficult if people directly see the costs and benefits of the proposal. Another example is social security. This program redistributes money across income groups but people do not know this.