| Abstract: | Politicians in various countries (e.g. in the USA, Switzerland and Austria) have suggested the levy of different forms of taxes or duties on crude oil. One of the major (normative) arguments behind all these proposals seems to somehow smooth oil prices after observing the dramatic oil price collapse and because of the conjecture of another, future oil price hike. Hence, these arguments refer (implicitly or explicitly) to adjustment costs to justify government intervention. This paper analyses whether the instrument of a tax on crude oil may improve welfare if oil prices are volatile and adjustment costs are important. It will be shown that these proposals are only defensible if the government is smart (uses foresight) and when the consumers are myopic. However, the optimal commodity tax should be zero if consumers and the government use the same forecast (perfect foresight). |
