The price effect of Michigan’s 2026 fuel tax reform

On 1 January 2026, Michigan replaced its 6% fuel sales tax with a flat per-gallon tax. Using daily retail gasoline price data at the city level and employing a difference-in-differences approach, we find that this policy change initially led to an approximately 4 cents-per-gallon increase in average fuel prices at the pump during January and February, implying about 72% pass-through of the tax to consumers. There is heterogeneity in the initial effect across locations, with evidence suggesting that the burden fell more heavily on areas with a larger share of commuting motorists. Following the disruption in global oil supply in early March 2026, the new flat fuel tax should, in principle, have provided consumers with more financial relief than the prior variable 6% tax, although our results imply that these gains were slow to set in.