Working Paper: NBER ID: w19736
Authors: Lucas W. Davis
Abstract: By 2015, global oil consumption will reach 90 million barrels per day. In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs increases the economic costs substantially.
Keywords: fuel subsidies; economic costs; deadweight loss; global oil consumption
JEL Codes: H23; Q41; Q48; Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subsidies (H20) | fuel consumption (Q41) |
| fuel consumption (Q41) | deadweight loss (H21) |
| subsidies (H20) | deadweight loss (H21) |
| eliminating subsidies (H23) | fuel consumption (Q41) |
| eliminating subsidies (H23) | external costs (D62) |