Determinants of state diesel fuel excise tax rates: the political economy of fuel taxation in the United States

Ever-escalating gasoline and diesel fuel prices in the United States (US) are prompting some states to temporarily suspend the collections of gasoline, and in fewer instances, diesel fuel, taxes. The focus of this paper is on the determinants of US state excise taxes levied specifically on diesel fuel. Among other things, we find the freight trucking industry’s contribution to total state employment is a highly significant determinant of a state’s diesel tax rate, consistently suggesting that the greater this contribution, the lower the tax rate, ceteris paribus. We find little evidence that the degree of freight transportation usage on state highways impacts diesel tax rates. These two findings taken together suggest that state legislators, when determining the diesel tax rate, exhibit behavior consistent with Stigler’s (Bell J Econ Manag Sci 2: 3–21, 1971) economic or positive theory of regulation. Moreover, state law makers appear less concerned over the impact that heavy freight transportation has on highway infrastructure, which appears to be at odds with the public interest or normative theory of regulation as articulated by Posner (Bell J Econ Manag Sci 4: 335–358, 1974).