Gasoline Prices, State Gasoline Excise Taxes, and the Size of Urban Areas

A monocentric model of land use that assumes urban spatial size is determined by a set of exogenous variables is employed to test the hypothesis that urban land size is negatively related to gasoline prices. Using a model from Brueckner and Fansler (1983), the amount of urbanized land area is shown to be a function of population, income, agricultural land prices and commuting costs. The latter is measured as the price of gasoline, broken into two components; the amount of any state gasoline excise tax imposed plus the total price paid by consumers minus such a tax. Using 1990 data, an empirical model that defines the dependent variable as the average-sized urban area in each state is estimated. The results confirm that higher levels of population and income contribute to larger amounts of urbanized land area, while higher land prices are primarily associated with smaller urban size. Of importance to this study, the results indicate that states with higher gas prices, mainly due to increased state gasoline excise taxes, are associated with smaller urban size