The Effect of Jet Fuel Tax Changes on Air Transport, Employment, and the Environment in the US

Abstract

This paper presents an analysis of the effects of jet fuel taxes on air traffic, employment and emissions using a difference-in-difference design. These findings are relevant, as US airports identify how to respond to revenue shortfalls and support local employment in the recovery after Covid-19. Jet fuel tax cuts are considered pro-growth by airlines and stakeholders, however, limited research documents the impacts on airline operations, employment, and emissions, which is an increasing issue given growing societal concerns about aviation sustainability. This study provides an analysis of the effects of changes in jet fuel taxes on air travel, employment, and the environment, using a difference-in-differences design based on data from major US airlines at several US hubs. Results suggest that a jet fuel tax cut increases air traffic by 0.2% on average but fades within a year. The direct effect on air transportation employment is insignificant, as is the effect on total employment. The estimated effect on pollution is an increase of over 1% in CO2, CH4, and N2O emissions. These findings illustrate the precarious balance between air transport growth, local employment, and environmental concerns, and may aid policymakers as they consider potential changes to jet fuel taxes.