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Blackman Et Al Presentation Incidence Fuel Taxes


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Blackman Et Al Presentation Incidence Fuel Taxes

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