Because of the relatively inelastic nature of demand for petrol, in the short run the tax will be an effective source of revenue. In the long run, however, theory predicts that people adjust their consumption of petrol; that is, over a period of years, people will consume less as the price increases (by switching to mass transit, consolidating trips, carpooling, or just travelling less). Thus, some environmentalists have advocated a fuel tax as a way to reduce reliance on fossil fuels.
In some regions of the world, differences in fuel taxes between countries result in a significant level of cross-border purchasing of motor fuel. This is particularly true in Europe, where large differences in fuel taxes, coupled with minimal or no border controls, encourage drivers to cross borders for the sole purpose of filling up their tanks with fuel. For example, petrol in Luxembourg is typically around 20% cheaper than in neighbouring Belgium. Since both countries belong to the Schengen agreement, the border crossings are unmanned and almost unnoticeable, except for the large number of petrol stations on the Luxembourg side of the border. A similar situation exists along the Northern Ireland border where historically fuel prices were much lower in Northern Ireland but in recent years the situation has reversed. In Western Europe, it is mostly small countries and territories (e.g. Luxembourg, Andorra, Gibraltar) that enjoy lower fuel taxes. This is possible because the reduced tax revenue caused by a lower fuel tax is offset by disproportionate numbers of drivers from neighbouring countries entering the small countries to pay the lower fuel tax. Most countries' customs regulations permit the duty-free import of the contents of a vehicle's built-in fuel tank, but there are exceptions. Singaporean customs officials check the fuel gauges of vehicles leaving Singapore and require that the fuel tank be at least three quarters full, in order to limit the amount of lower taxed fuel that Singaporean residents can buy during short trips to Malaysia. Recently, gas stations in Argentina near the Brazilian border list two different prices for gasoline, one for cars with Argentinian license plates and another one for foreign plates. This was done to restrict Brazilian drivers from buying cheaper fuel in Argentina, generating long lines at the gas stations and driving gas prices up. Gas stations on Interstates in New Jersey close to the New York border typically witness large volumes of sales from drivers taking advantage of the double cuts of less expensive fuel blend and lower fuel sales tax resulting in a significant savings over New York.
