Auctioned oil import licenses

Three times in recent years American Presidents have tried to levy a tax on imported oil in order to decrease the quantity. Three times, the U.S. Congress has blocked the policy, demonstrating that a tax is politically infeasible. As an alternative, we propose an auctioned import license policy, in which the President would have discretion over the quantity of petroleum sold each month. The quantity might be chosen to maintain a certain differential between the domestic and international prices of oil. Under this strategy, licenses would have economic characteristics very similar to those of a tax. The political characteristics, however, would be quite different. Sections of the public would be less likely to perceive licenses as transferring revenues from households to the government and more likely to perceive them as effective in reducing imports. Alternatively, oil import licenses could be used to negotiate with OPEC and other importing nations.The authors wish to thank William Dunn, Robert Walters, Richard Nehring and Charles Phelps for their helpful comments. The usual caveat applies.