Photo: Adam LedererThe price of gasoline is currently outrageous in the Netherlands, about €1.60/liter (about $8.80 per U.S. gallon). What do residents do? They arbitrage, so that if they’re headed south they plan to drive through and fill up in Luxembourg, where the price is “only” about €1/liter. This is a bad idea, unless your trip would take you near there anyway. Also, because there are often long lines of liked-minded arbitrageurs waiting to fill up, this is a bad idea if your time is valuable. I would be happy to bet that you see relatively few Mercedes with Dutch plates filling up in Luxembourg, but lots of small VWs and other cars that cater to more middle-income drivers, those whose wage—and thus the value of whose time — is likely to be lower.
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Hang on a second, what’s this “I would be happy to bet” business? Are you not, as an economist, supposed to have real answers?
As it happens, I have passed through and filled up in Luxembourg. The queues are short because they’re well organised, you fill up then drive forward and pay from the car, and it’s not so hard for middle income people to go to Germany and buy nice 2nd hand Mercs. So the only real point you’re making here is that gasoline costs lots more in Europe than in the US…
And?
Ummm… the price of gasoline is currently outrageous in the U.S.A., where the price no only fails to reflect the environmental damage of gasoline use, but also the political damage of american oil addiction.
A simple $2 per gallon federal tax should fix that (and the federal budget). Note that if the tax is in dollar terms and not in percentage terms, it has the additional benefit of reducing the volatility of gas price at the pump in relation to the volatility of oil prices in international markets.
I’m just sayn
Wow, this is brilliant. Gas is bad for the environment so I will take a huge tax on that product and give it to the government, a move absolutely guaranteed to find inexpensive environment friendly alternative fuel sources.
“inexpensive environment friendly alternative fuel sources”
If those existed in this universe you would not need the government or anyone else to find them, you would be using them in your car today.
Wake up! Energy costs money and no amount of R&D will ever compensate for being wasteful with it.
Outrageous is a bit strong.
I’d say it is outrageous that the US doesn’t have a modern rail network, that people make really short trips in cars instead of on bicycles, and the the road network is subsidized at the expense of other forms of transport. The Dutch transport model is to be envied, I would have thought.
Other than truck drivers, I’ve never seen anyone really get mad about car fuel prices, at least here in Germany. I don’t think anyone would fight an election on low fuel prices, but like the folks in the Netherlands, we are not adverse to topping up in Luxembourg. We do love the autobahn too.
The US has the world’s largest rail network, it’s just used to move goods rather than people (38% of freight in the US travels by train as compared with 8% in the EU), which may very well be a better use of rail capacity as 18-wheelers inflict much greater wear on roads than small cars.
With or without coal? Please discount the rather steady stream of coal out of your numbers and then we discount the hot air Bruxelles produces out of our energy calculations
I actually remember seeing a lot of Mercedes filling up in Luxembourg, but for a reason you may not have factored in. In addition to lower taxes (and therefore lower prices) on gas, there is also much lower taxes on wine, liquor and cigarettes. Thus, you’re not traveling to Luxembourg just for gas, you’re also filling up on other things.
It all depends upon your perception. A German friend of mine says when asked why he drives 20 minutes to Luxembourg for gas: “I feel like I pay about the same amount in both places, but in Luxembourg they give me a really nice bottle of Bordeaux for free.” Hard for me to argue with that logic.
Why is the Dutch price outrageous? The government needs money to run, so it’s going to tax us one way or another. Taxing something with huge negative externalities that people also can control their usage of (to some degree at least) is then a good choice.
With all this talk about environmental degredation through the usage of fossil fuels, could any economist enlighten us as to the social cost imposed by the consumption of a gallon of gasoline? What would the gas tax be if it were purely a Pigouvian method to offset externalities?
I live in CT, which has relatively high gas prices. Even though I drive a company car, I try to save money on gas where possible. 28 miles north of me, in MA, gas is 8-9% cheaper, and 115 SW of me in, NJ, it’s 10-11% cheaper. Almost every out-of-state trip takes me to one or the other. I haven’t filled up in CT in months…
Gas has always been 3 times expensive as US. We are used to it. Let people know that in italy 92% of the price is represented by taxes.