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Do Prices for Petroleum Products Converge in a Unified Europe with Non-Harmonized Tax Rates?

  • Axel Dreher
  • Tim Krieger

The paper presents panel unit root tests for price convergence of different petroleum products over the last decade. We distinguish consumer and producer price convergence and test for the absolute versus relative version of the law of one price. Comparing the speed of convergence as well as its development over time indicates that price arbitrage in the common EU markets is not sufficiently strong to level the price differentials, mainly caused by different excise taxation. We show that taxation alone leads to market segmentation and that discretionary national tax policy by EU member states is not (yet) threatened by the observable level of cross-border shopping.

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Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 29 (2008)
Issue (Month): Number 1 ()
Pages: 61-88

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Handle: RePEc:aen:journl:2008v29-01-a04
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