Distributional and Emission Effects of Temporary Gasoline Subsidies: Evidence from Spain

In response to the sharp rise in fuel prices following Russia’s 2022 invasion of Ukraine, many governments introduced temporary fuel subsidies to shield households from higher energy costs. This paper evaluates the distributional and environmental effects of Spain’s fuel subsidy policy. We combine household-level estimates of gasoline price elasticities from the Household Budget Survey with weekly retail fuel price data to estimate the pass-through of the subsidy to consumers. We find an average short-run gasoline price elasticity of 0.55 and incomplete pass-through, with only 89% of the subsidy reflected in retail prices. As a result, part of the fiscal transfer was captured by fuel retailers, while the benefits accrued disproportionately to higher-income households: the lowest income quartile received 12.4% of total benefits compared with 28.4% for the highest quartile. We also identify substantial regional heterogeneity in this distribution. The subsidy also increased fuel consumption and carbon emissions. Overall, the findings suggest that uniform fuel subsidies are poorly targeted and can conflict with both equity and environmental policy objectives.