Poster #98 - Time to Adoption: Evidence on Indexed Motor Fuel Taxes from U.S. States

• In Event: Saturday Poster Luncheon

Abstract

Transportation finance has become a pressing policy issue in the United States. Historically, motor fuel taxes have served as the primary source of funding for transportation infrastructure. However, rising fuel efficiency and the growing electrification of the vehicle fleet have significantly reduced this revenue stream. At the same time, fuel tax rates have largely remained stagnant, constrained by the political difficulty of enacting legislative increases. As a result, the resources available to expand and maintain transportation infrastructure have steadily declined. In response, many states have adopted automatic adjustments to their motor fuel tax rates, commonly referred to as “indexed” or “variable” taxes. As of 2025, 26 states have implemented such mechanisms, linking fuel tax rates to indices such as the Consumer Price Index (CPI), wholesale gasoline prices, highway construction costs, or measures of fuel efficiency. Despite its growing popularity over the past decade, little attention has been paid to this policy instrument.

To address this gap, this study will investigate the factors driving the increasing policy adoption of indexed motor fuel taxes. Specifically, it examines fiscal, economic, political, and spatial dynamics that shape the differential timing of adoption across states. Drawing on the policy diffusion and innovation framework, the analysis empirically tests both internal and external influences on the timing of the implementation of motor fuel tax rate indexing. To achieve this end, the study will employ a Cox proportional hazards model using data from all 48 continental U.S. states spanning the period 1960 to 2024.

This study contributes to transportation finance and policy innovation literatures in three principal ways. First, it analyzes the contextual factors underlying the differential timing of indexed motor fuel tax adoption across states. Second, it extends applications of policy innovation and diffusion theory to state tax policy, demonstrating how intergovernmental learning and cross-state interactions shape governmental responses to fiscal pressures. Third, it situates motor fuel tax indexing within broader debates on tax policy innovation and state revenue strategies, thereby linking transportation finance to wider discussions of fiscal adaptation and policy change.

Author

• Meera Omar, Georgia State University
  Presenting Author