Blackman Et Al Presentation Incidence Fuel Taxes
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  • 1. Fuel Tax Incidence in Central America Francisco Alpizar Allen Blackman Rebecca Osakwe EfD Center for Central America Thomas Sterner EEU University of Gothenburg 2 nd Annual Environment for Development meeting Beijing, November 3-7, 2008
  • 2.
    • Policy context
    • Data
    • Results
    • Looking ahead
    Outline
  • 3.
    • Conventional air pollution in large CA cities is severe
    Policy context (source: Baldasano et al. 2003)
    • Greenhouse gases also significant
  • 4.
    • Barriers to use of conventional command-and-control policies e.g., M&I programs and driving day restrictions
      • weak regulatory institutions
      • lack of political will
    • Fuel taxes can sidestep these constraints
    • But are they regressive?
      • industrialized countries: mixed evidence
      • developing countries: limited evidence
        • Are fuel taxes progressive?
        • most poor households do not own cars
      • Central America: no evidence
    • A second policy context: incidence of global fuel prices spike
    Policy context (cont’d)
  • 5.
    • Task 1: Use data from household income/expenditure surveys to calculate average direct and indirect expenditures on fuel by expenditure decile
    • Task 2: Use national aggregate on data on fuel consumption to calculate price elasticity of fuel demand
    • Task 3: Conduct simple spreadsheet simulations of the effect of fuel taxes on expenditures
    Goals
  • 6. Costa Rica: data
    • National Institute of Statistics and Census (INEC) Household Income and Expenditure Survey for 2004-2005
      • random sample of 4231 households
    • Five different types of fuel expenditure
      • gasoline
      • diesel
      • gasoline+diesel
      • fuel cost of bus transport (on avg. 21% bus fare)
      • gasoline+diesel+fuel cost of bus transportation
  • 7. Average household expenditure on fuel as a percentage of total expenditure, by fuel type and decile
  • 8. Fuel tax simulation G = expenditure on fuel P = price fuel Q= quantity fuel ε = price elasticity of demand (1) (3) (4) (2) short run ε = -0.24 (Sterner and Dahl 1992) long run ε = -0.80 (Sterner and Dahl 1992) tax (dP/P) = 10%
  • 9. Change in expenditure on gas+diesel+fuel used in bus transportation as a percent of total expenditure due to a 10% tax, assuming two elasticities for gas+diesel (short-run, long-run) and zero elasticity for fuel used in public transportation, by expenditure decile
  • 10. Replicating analysis for Nicaragua and Panama using World Bank LSMS data
    • Fatal flaw: questionnaire asked households to report expenditures on different items for different time periods
      • e.g., fuel and transport: “in the last 7 days” but other items: “in the past ½ month/1 month/6 months/12 months”
    • Therefore, not possible to use common time period to calculate % total expenditures on fuel
  • 11. Costa Rica fuel price elasticity
    • Lagged endogenous regression
    • lnF ti = α 0i + α 1i lnP ti + α 2 lnY ti + α 3i lnF t-1i +ε ti
    • where
    • i indexes fuel type (diesel, regular, super)
    • t indexes year
    • F ti average annual fuel consumption
    • Y ti annual GDP
    • P average annual fuel price
    • Data: annual and monthly for regular, diesel, super
    • Results: own-price elasticity ( α 1i ) either has wrong sign or is insignificant
  • 12. Looking ahead
    • Analyze data from El Salvador (household surveys 1989-2003)
    • Obtain household income and expenditure survey data for more CA countries
      • Contacted statistical institutes in
        • Belize
        • Dominican Republic
        • El Salvador
        • Guatemala
        • Honduras
      • Best hope: Dominican Republic
    • Revisit elasticity results?
    • Write up results
  • 13. THANK YOU