Fuel tax, cross subsidy and transport: assessing the effects on income and consumption distribution in Brazil

The passenger transport has become a typical item in the household budget in Brazil, and structural changes in this type of service affect households differently. Households have different positions in the distribution of income and consumption, some of them more dependent of the public transport services and on private transport. Our paper explores the links between consumption, income and transport in assessing the redistributive and economic effects of the fuel tax in Brazilian economy, called contribution of intervention in the economic domain (CIDE) – fuels. To accomplish this task, we developed a dynamic general equilibrium model which recognizes a Social Accounting Matrix (SAM). Two scenarios are evaluated: (1) an overall cut of CIDE-fuels to assess its role in economy; (2) burden the gasoline tax and reduce the diesel tax to subsidize public transport services (cross subsidy) and influence an intermodal substitution from private transport to public transport. The main findings indicate a deviation on real GDP above the baseline forecast path, positively affecting by internal market and the reduction in income inequality. Typical households in the middle and lower income bracket and dependent on public transport would benefit most from these policy instruments. However, the projections seem to confirm an onus on for households more intensive in the use of private transport.