Does a Gas Tax Cut Reduce Retail Fuel Prices?

Using a data set of daily prices for four types of fuels from 38 gas stations located in Northern Spain we perform a differences-in-differences analysis to explore the impact of a gas tax reduction on prices at the pump. We find that about 60–65 per cent of the tax cut was passed on to regular unleaded gasoline retail prices. We also find evidence of full shifting of the tax cut to regular diesel and premium fuel prices in the week of the tax reform and one week after. However, this impact disappears two weeks after the adoption of the tax reform.