Consumers in Maryland received 72% of the decrease in the state gas tax-does that mean that demand is less elastic than supply?

See Congress Unlikely to Heed Biden’s Call for Three-Month Suspension of Gas Tax: President says tax holiday would provide Americans some immediate relief, but many lawmakers are wary of idea by Tarini Parti, Amara Omeokwe and Lindsay Wise of The WSJ. Excerpts:

"In Maryland, for example, consumers saw an average of a 26-cent reduction in prices over the course of that state’s holiday, which lasted for roughly a month between March and April, meaning 72% of the tax decrease was passed onto them, said Zheli He, an economist who conducted the analysis."

How much of an excise tax is paid by the buyer and how much is paid by the seller is called the tax incidence (an excise tax is a per unit tax, like $1 per unit and I will assume that the seller has to collect the tax and turn it over to the government).

That means that the supply line shifts upwards by the amount of the tax so that every point on the new supply line is $1 above the old supply line (if the tax is $1). But in this case we will lower the supply line since Maryland suspended its tax.

If the buyer pays more than half the tax, then demand is less elastic than supply (elasticity tells us how responsive quantity demanded or quantity supplied is to a price change). But if the tax is reduced (or eliminated), the buyer would see the price they pay fall by more than half of the tax.

The graph below is an example. The demand line is less elastic than the supply line, meaning that quantity is less responsive to a change in price, at least, it seems, over any price pairs that are not where demand starts on the P axis and P = 0 (textbooks always mention that elasticity is not the same thing as the slope of the line).

If the excise tax is $5, then supply shifts down from Supply1 to Supply2 when it is reduced to zero or suspended. The price falls from $15 to $12. So the buyers get $3 of the $5 tax cut or most of it (because they pay $3 less now). This happens because the demand is less elastic than supply.

To see the report that The WSJ refers to go to Effects of a State Gasoline Tax Holiday. That report does mention tax incidence but it does not say which is less elastic, supply or demand.

Related posts:

An example of a product price rising less than an increase in a tax (2020)

If You Lower The Excise Tax On A Good By $1.00, Does A Firm Save $1.00 On Each Unit Sold? (2010)

How Firms’ Reaction To An Excise Tax Determines The Market Outcome (2020)

Does The Wall Street Journal's Explanation Of The Gas Tax Make Sense? (2008)