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The Economic Cost of Global Fuel Subsidies

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  • Lucas W. Davis

Abstract

By 2015, global oil consumption will reach 90 million barrels per day. In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs increases the economic costs substantially.

Suggested Citation

  • Lucas W. Davis, 2013. "The Economic Cost of Global Fuel Subsidies," NBER Working Papers 19736, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19736
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    References listed on IDEAS

    as
    1. Christopher R. Knittel, 2012. "Reducing Petroleum Consumption from Transportation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 93-118, Winter.
    2. Brons, Martijn & Nijkamp, Peter & Pels, Eric & Rietveld, Piet, 2008. "A meta-analysis of the price elasticity of gasoline demand. A SUR approach," Energy Economics, Elsevier, vol. 30(5), pages 2105-2122, September.
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    Cited by:

    1. Stéphane Gauthier & Fanny Henriet, 2018. "A Fuel Tax Decomposition When Local Pollution Matters," PSE Working Papers halshs-01826330, HAL.
    2. repec:aen:journl:ej38-si1-davis is not listed on IDEAS
    3. repec:eee:enepol:v:124:y:2019:i:c:p:355-370 is not listed on IDEAS
    4. repec:eee:eneeco:v:71:y:2018:i:c:p:171-185 is not listed on IDEAS
    5. repec:eee:eneeco:v:74:y:2018:i:c:p:275-286 is not listed on IDEAS
    6. repec:eee:eecrev:v:99:y:2017:i:c:p:151-169 is not listed on IDEAS
    7. repec:aea:aecrev:v:109:y:2019:i:5:p:1873-1910 is not listed on IDEAS
    8. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
    9. Lucas W. Davis, 2017. "The Environmental Cost of Global Fuel Subsidies," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    10. Soren T. Anderson & James M. Sallee, 2016. "Designing Policies to Make Cars Greener: A Review of the Literature," NBER Working Papers 22242, National Bureau of Economic Research, Inc.
    11. repec:oup:renvpo:v:11:y:2017:i:1:p:138-155. is not listed on IDEAS
    12. Corrado Di Maria & Sjak Smulders & Edwin Werf, 2017. "Climate Policy with Tied Hands: Optimal Resource Taxation Under Implementation Lags," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 537-551, March.
    13. Burke, Paul J. & Kurniawati, Sandra, 2018. "Electricity subsidy reform in Indonesia: Demand-side effects on electricity use," Energy Policy, Elsevier, vol. 116(C), pages 410-421.
    14. Grainger,Corbett Alden & Zhang,Fan & Schreiber,Andrew William, 2015. "Distributional impacts of energy cross-subsidization in transition economies : evidence from Belarus," Policy Research Working Paper Series 7385, The World Bank.
    15. repec:eee:enepol:v:125:y:2019:i:c:p:65-81 is not listed on IDEAS
    16. Dutu, Richard, 2016. "Challenges and policies in Indonesia's energy sector," Energy Policy, Elsevier, vol. 98(C), pages 513-519.
    17. repec:spr:ieaple:v:17:y:2017:i:3:d:10.1007_s10784-017-9358-9 is not listed on IDEAS
    18. repec:eee:eneeco:v:68:y:2017:i:c:p:373-382 is not listed on IDEAS
    19. Arzaghi, Mohammad & Squalli, Jay, 2015. "How price inelastic is demand for gasoline in fuel-subsidizing economies?," Energy Economics, Elsevier, vol. 50(C), pages 117-124.
    20. Cécile Couharde & Sara Mouhoud, 2018. "Fossil fuel subsidies, income inequality and poverty. Evidence from developing countries," EconomiX Working Papers 2018-42, University of Paris Nanterre, EconomiX.
    21. Mendoza, Miguel Ángel, 2014. "Panorama preliminar de los subsidios y los impuestos a las gasolinas y diésel en los países de América Latina," Documentos de Proyectos 641, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    22. Siddig,Khalid & Minor,Peter J. & Grethe,Harald & Aguiar,Angel & Walmsley,Terrie Louise, 2015. "Impacts on poverty of removing fuel import subsidies in Nigeria," Policy Research Working Paper Series 7376, The World Bank.

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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