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Fiscal Implications of Fuel Taxation Adjustments

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  • George Palaiodimos

Abstract

This article assesses the fiscal implications of the 2012 Greek excise tax reform that involved the adoption of a common tax rate between automotive and heating diesel markets. Based on univariate and system estimation methods on demand models that account for linkages between energy markets, evidence of an elastic heating diesel demand is compared to automotive diesel demand with regard to excise taxation. Limited support of an immediate antiarbitrage effect is found in these diesel markets after the common rate adoption. This is attributed to the significant heating diesel stock accumulation and the longer horizon of relevant tax administration reforms. Ceteris paribus, the budgetary outcome of the 2012 reform is positive during its first year of implementation, evidenced by the higher rate introduced compared to the breakeven rate of €230/1,000 liters simulated in this analysis. Nevertheless, factors like income, weather conditions, and continuing arbitrage influence this outcome negatively.

Suggested Citation

  • George Palaiodimos, 2017. "Fiscal Implications of Fuel Taxation Adjustments," Public Finance Review, , vol. 45(5), pages 647-677, September.
  • Handle: RePEc:sae:pubfin:v:45:y:2017:i:5:p:647-677
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