Gasoline Taxes and the Great Depression: A Comparative History

It is well known among transportation policy analysts that gasoline is a lot more expensive in Europe than in the United States, and that this difference arises because of much higher gasoline tax rates in Europe. A recent Congressional Research Service study, for example, points out that in 2008 before-tax gasoline prices were quite similar in Germany, France, the United Kingdom, and the United States, ranging from $2.84 to $2.96 per gallon. With taxes added in, however, the prices averaged $7.53 per gallon in both France and the UK and $7.72 in Germany, while they were only $3.24 per gallon in the United States.¹ While the enormous gap in gasoline tax rates has widened in recent decades, it is of long historical standing.² Every year since 1930, for example, gasoline tax rates in both Germany and Great Britain have been far above the combined federal and state rates in even the most highly taxed American state. Even in New Zealand, a quite rural country with a lower population density than the United States and the world’s second-highest rate of motor vehicle ownership in the 1930s, gasoline tax rates have been at least 50 percent higher than in any American state ever since 1930.³

Because the demand for motor fuels is at least somewhat elastic with respect to price, especially for price signals that endure for several years and thus affect decisions on car purchases and housing location, the price differential caused by this difference in tax rates has had an impact on European transportation patterns.⁴ Germans, for example, are much more likely than Americans to use mass transit, even when controlling for such variables as income, population density, and degree of urbanization; this difference can be attributed in large part to the persistently higher price of gasoline in Germany.⁵ Thus, motor fuel taxation is a potentially useful tool for managing gasoline consumption to deal with such problems as global warming and peak oil.⁶ Given this utility, the question arises of what forces have kept rates so much lower here than even in other sparsely settled countries for the past eight decades.

A comprehensive historical explanation for this persistent difference in gasoline tax rates cannot yet be offered, mostly because the historical evidence necessary for a cross-country comparison spanning the twentieth century still remains to be documented.⁷ In this article, I want to contribute toward this larger project by exploring the political dynamics of the gasoline tax during the Great Depression. These four years, from 1930 to 1933, were a key turning point in the international history of the gasoline tax. At the end of 1929, motor fuel imposts in Germany and New Zealand were essentially equal to that in the highest-taxed state, Florida, at $0.66 to $0.68 per U.S. gallon in 2005 U.S. dollars, while the British rate was only slightly higher at $0.84 per U.S. gallon (within the range of exchange-rate uncertainties). But by the end of 1933, in nominal terms the rate had doubled in Great Britain, more than doubled in New Zealand, and nearly tripled in Germany, while it had increased only 42 percent in Florida and 52 percent on average in the United States as a whole.⁸ At the beginning of 1934, the gasoline tax amounted to $1.96 per U.S. gallon in 2005 U.S. dollars in Great Britain, $2.24 in New Zealand, and $2.54 in Germany. Meanwhile, in the United States the combined state and federal tax ranged from $0.45 in the lowest-taxed states to $1.21 in the highest-taxed states, with the average rate being $0.70.⁹ In other words, the rates overseas during these four years moved far above the range encountered in the United States, creating a disparity that has persisted ever since.

Unfortunately, the existing historical literature on gasoline taxes offers little guidance for analyzing this particular period. The historiography is best developed for the case of the United States, but here...