IDEAS home Printed from
   My bibliography  Save this paper

How relative prices affect fuel use patterns in manufacturing : plant - level evidence from Chile


  • Guo, Charles C.
  • Tybout, James R.


Some economists have urged reliance on fuel taxes and other fiscal incentives to reduce air pollution in semi-industrialized countries. They argue that policies that act on relative prices are easier to enforce than those based on emission monitoring, create less misallocation of resources, and are relatively free of the rent-seeking and corruption that accompany regulations administered at the plant level. To be effective, however, fuel specific taxes and subsidies must inspire manufacturers to significantly adjust their input use as relative prices change. Moreover, these policies must not create politically unacceptable income redistribution. The authors shed light on both issues by analyzing detailed panel data on Chilean manufacturing plants. Overall, their estimates suggest that there is substantial scope for fuel taxes to encourage fuel substitution, but that the response will be very uneven - not only across sectors but across producers of different sizes. Although others may be correct in arguing that fiscal incentives are easier to implement that are direct emission controls, the costs of adjustment are likely to be concentrated fairly narrowly for some fuels. The authors found bakeries, for example, to be very responsive to changes in the relative prices of alternative fuels. By contrast, energy demand in metal products plants appears to be very insensitive to relative prices, no matterwhat estimates are used. Meatpackers fall somewhere between the two - with little price responsiveness in electricity demand, but more in the demand for energy from other sources, especially if coherency-constrained figures are used. It seems that the effects of fuel taxes would depend in significant measure on the sectoral composition varies and some sectors have little flexibility.

Suggested Citation

  • Guo, Charles C. & Tybout, James R., 1994. "How relative prices affect fuel use patterns in manufacturing : plant - level evidence from Chile," Policy Research Working Paper Series 1297, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1297

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Wales, T. J. & Woodland, A. D., 1983. "Estimation of consumer demand systems with binding non-negativity constraints," Journal of Econometrics, Elsevier, vol. 21(3), pages 263-285, April.
    3. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, January.
    4. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
    5. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-857, December.
    6. Lee, Lung-Fei & Pitt, Mark M., 1987. "Microeconometric models of rationing, imperfect markets, and non-negativity constraints," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 89-110.
    7. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-179, May.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1297. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.