How relative prices affect fuel use patterns in manufacturing : plant - level evidence from Chile
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.
|Date of creation:||31 May 1994|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, September.
- Deaton, Angus, 1988.
"Quality, Quantity, and Spatial Variation of Price,"
American Economic Review,
American Economic Association, vol. 78(3), pages 418-430, June.
- Deaton, A., 1988. "Quality, Quantity, And Spatial Variation Of Price," Papers 30, World Bank - Living Standards Measurement.
- 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.
- 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.
- Lee, Lung-Fei & Pitt, Mark M., 1987. "Microeconometric Models of Rationing, Imperfect Markets, and Non-Negativity Constraints," Bulletins 7470, University of Minnesota, Economic Development Center.
- 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)