A reason to celebrate pricey petrol

Do higher gasoline taxes save lives? David C. Grabowski and Michael A. Morrisey, writing in the latest issue of Economic Letters, think so. Their conclusion:

This paper offers the first direct test of whether plausibly exogenous increases in gasoline taxes save lives. In fixed effects models that incorporate a state-specific linear time trend to control for important omitted variables, we found that a 10% increase in the gasoline tax was associated with a 0.6% decrease in the traffic fatality rate. Unlike the beer tax and motor vehicle fatalities literature (Dee, 1999), gasoline taxes appear to produce relatively similar (and plausible) traffic safety estimates when compared with the gasoline price estimates from the literature.

Thus, a tax that yields a real increase in the price of gasoline, sustained over time, will reduce traffic fatalities substantially. However, it is important to note that more than traffic safety must be considered in such a policy decision. Higher gasoline taxes mean that all drivers will give up some travel that is currently worth more than the costs of travel. The policy issue is whether the (statistical) lives saved are worth more than the travel foregone. Such a calculation is beyond the scope of this paper.

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