[ol]
[li]Gas is a whole lot cheaper in the US than the EU. It costs about $7.50 per US gallon in London, for example.[/li][li]Oil/gas prices as the $8/gallon mark would smash the US economy – the cost of inputs and transport would skyrocket, and the economy would be very badly hit.[/li][li]The US economy does better and is more dynamic than the EU economy.[/li][/ol]
So I was wondering … how much of (3) is due to (1)? And how much is that counterbalanced by the additional tax revenues that come from the EU’s higher gas prices, which are mostly tax?
In other words, if EU gas prices fell to US levels, how close would the European economy get to the American one?
Lower taxes would free up the economy, but each individual state has its own goals and priorities, and coordination would be a huge problem. Also, unless they could somehow share resources for its administrations (government and civil infrastructure), that is also a huge cost that they would hamper GDP growth.
But, assuming that all was in order, could lower gas prices increase GDP growth? Yes, definitely, but to a point. The infrastructure in Europe is not that big, or as smooth as the US. I know the most about the UK, and if the rest of Europe is from what I’ve seen on the eurorail, then they have a lot of work to do. A lot of the roads in the cities are not conducive to trucking. Rail only gets products so far. However, it’s the issue of uniformed government and administrative services that is the larger hurdle to cross.
It depends, if the gas taxes are taxes that would not be otherwise collected by the government then the gas taxes probably lower economic growth depending on what the money is spent on. If the taxes collected at the gas pump replace taxes that would be collected in income or sales taxes, then the economic effect would be neutral or even positive.
If the US suddenly hiked up the gas taxes there would be a transition to a new equilibrium. This transition could slow economic growth for a period and it would probably hurt the US more than Europe since density is lower and transportation costs are therefore higher.
If the EU gas prices fell to the US levels and other taxes were not raised the European economy would probably do a little better than currently, but it would depend on a myriad of details.
The bulk of the cost of gas in the UK is tax - about 70% of the final cost is a tax of one form or another (mainly fuel duty and VAT).
We have adapted to the high costs, though. Even 10 years ago big cars were getting over 40mpg, and we embraced diesel and made huge advances. I currently drive an MPV that is almost the size of a Chrysler Voyager but it gets 52mpg in real-world figures (divide by 1.2 for the US figure: 43.3mpg US), so while we pay more for our fuel, we tend to go much further between fill ups, and we are pretty densely populated so our commutes, haulage, parcel delivery, commerce etc requires less total fuel.
I’m not sure how things really compare, since every single European country has universal healthcare which is partially funded by gas taxes (the UK government’s expenditure on road and transport is less than the tax revenue, so the excess goes somewhere), but the US already spends twice as much of it’s GDP on healthcare than the UK, percentage wise (9% vs 15%), so this must be coming out of taxes already.
As another poster already pointed out the “EU economy” doesn’t really exist - you have to look at each member state.
The EU economies have adapted to higher fuel prices by using less fuel - this is an intended consequence and what ‘dynamic economies’ do (and apparently what the OP does not expect the US economy to be able of). For example the German rise in fuel and electrical energy taxes of 1999 was explicitly to incentivize energy saving more; this goal was endorsed by the centre-left government that introduced it as well as the current centre-right one.
I believe that the high petrol prices in the U.K. are a significant block to low-end employment: people simply can’t afford to commute as far as they used to.