Gas Tourism and the Failure of Subsidies

The New York Times published this piece on the so-called “gas tourism” happening at the Mexican border. Gas tourism is the practice of actually driving somewhere to buy gas. Gasoline and diesel are much cheaper in Mexico then in America, and some living in border communities feel that provides enough incentive to brave traffic and drive out of their way. The existence of this practice should be both surprising and disheartening, but the cause is obvious.

Crude oil is a commodity, its price is set on the worldwide open market. Some reasons for why the prices differ so much are that Mexican gasoline is of poorer quality, and some American stations alledge that there is foulplay at work, such as diluting the fuel or speeding up the pump’s measuring. A large part of the reason though, is that while the American gas carries a tax to (partially) offset infrastructure and environmental damage, in Mexico gas is actually subsidized. Needless to say, if not for this market distortion (and for the lower quality of Mexican gas) it would not be possible to save money by burning gas in order to buy gas. Continue reading