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Greenflation or greensulation? The case of fuel excise taxes and oil price pass-through

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  • Ahn, JaeBin

Abstract

This paper examines the role of fuel excise taxes in mitigating the impact of global oil price fluctuations on domestic inflation. Using a panel dataset of 28 OECD countries from 2014 to 2021, the study explores how varying levels of fuel excise taxes affect the pass-through of oil price changes to retail fuel prices and overall CPI inflation. A range of econometric models confirms the robust relationship between fuel tax rates and oil price pass-through, indicating that higher fuel excise taxes are associated with a lower pass-through of oil price fluctuations to retail fuel prices and CPI inflation. Quantitatively, differences in fuel tax rates can account for approximately 30% of the variation in annual CPI inflation between countries such as the U.S. and the U.K. during the 2021 inflation surge. These results suggest that fuel excise taxes can serve as a buffer against volatile oil price shocks, offering a potential role for stabilizing domestic inflation in the face of global energy price volatility.

Suggested Citation

  • Ahn, JaeBin, 2025. "Greenflation or greensulation? The case of fuel excise taxes and oil price pass-through," Energy Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:eneeco:v:148:y:2025:i:c:s0140988325004402
    DOI: 10.1016/j.eneco.2025.108613
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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