Working Paper: NBER ID: w22105
Authors: Lucas W. Davis
Abstract: Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs of global fuel subsidies using the latest available data and estimates from the World Bank and International Monetary Fund. Under preferred assumptions about supply and demand elasticities, current subsidies cause $44 billion in external costs annually. This includes $8 billion from carbon dioxide emissions, $7 billion from local pollutants, $12 billion from traffic congestion, and $17 billion from accidents. Government incentives for alternative fuel vehicles are unlikely to cost-effectively reduce these externalities as they do little to address traffic congestion or accidents, and only indirectly address carbon dioxide and local pollutants.
Keywords: fuel subsidies; external costs; alternative fuel vehicles; economic efficiency; environmental impact
JEL Codes: H23; Q31; Q41; Q48; Q52; Q53; Q54; Q58; R41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fuel subsidies (H20) | External costs (D62) |
| Fuel subsidies (H20) | Carbon dioxide emissions (Q54) |
| Fuel subsidies (H20) | Local pollutants (Q53) |
| Fuel subsidies (H20) | Traffic congestion (L91) |
| Fuel subsidies (H20) | Accidents (J28) |
| Fuel subsidies (H20) | Deadweight loss (H21) |
| Government incentives for alternative fuel vehicles (Q42) | External costs (D62) |