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The long-run macroeconomic impacts of fuel subsidies in an oil-importing developing country

Author

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  • Plante, Michael

Abstract

Analytical and numerical results show how the presence of a subsidy on household and firm purchases of oil products distorts long-run macroeconomic aggregates in an oil-importing developing country. Beyond leading to over-consumption of oil products these subsidies also lead to increased labor supply, a distorted emphasis on producing traded goods, and higher real wages. The subsidy also impacts the relative price of non-traded goods, causing it to fall when the non-traded sector is more oil-intensive than the traded sector and vice-versa.

Suggested Citation

  • Plante, Michael, 2011. "The long-run macroeconomic impacts of fuel subsidies in an oil-importing developing country," MPRA Paper 33823, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33823
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    File URL: https://mpra.ub.uni-muenchen.de/33823/1/MPRA_paper_33823.pdf
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    References listed on IDEAS

    as
    1. John M. Piotrowski & David Coady & Justin Tyson & Rolando Ossowski & Robert Gillingham & Shamsuddin Tareq, 2010. "Petroleum Product Subsidies; Costly, Inequitable, and On the Rise," IMF Staff Position Notes 2010/05, International Monetary Fund.
    2. David Coady & Taimur Baig & Joseph Ntamatungiro & Amine Mati, 2007. "Domestic Petroleum Product Prices and Subsidies; Recent Developments and Reform Strategies," IMF Working Papers 07/71, International Monetary Fund.
    3. Daniel Leigh & Moataz El-Said, 2006. "Fuel Price Subsidies in Gabon; Fiscal Cost and Distributional Impact," IMF Working Papers 06/243, International Monetary Fund.
    4. Hafedh Bouakez & Nooman Rebei & Désiré Vencatachellum, 2008. "Optimal Pass-Through of Oil Prices in an Economy with Nominal Rigidities," Cahiers de recherche 0831, CIRPEE.
    5. Robert Gillingham & David Locke Newhouse & David Coady & Kangni R Kpodar & Moataz El-Said & Paulo A Medas, 2006. "The Magnitude and Distribution of Fuel Subsidies; Evidence from Bolivia, Ghana, Jordan, Mali, and Sri Lanka," IMF Working Papers 06/247, International Monetary Fund.
    6. Arze del Granado, Francisco Javier & Coady, David & Gillingham, Robert, 2012. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," World Development, Elsevier, vol. 40(11), pages 2234-2248.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Gerhard Glomm & Juergen Jung, 2012. "A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy: The Case of Egypt," Caepr Working Papers 2012-006, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.

    More about this item

    Keywords

    oil; fuel-price subsidies; developing countries; fiscal policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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