The Economic Cost of Global Fuel Subsidies
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.
I am grateful to Judson Boomhower, Severin Borenstein, Gilbert Metcalf and Catherine Wolfram for helpful comments. I have not received any financial compensation for this project nor do I have any financial relationships that relate to this research. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Lucas W. Davis, 2014. "The Economic Cost of Global Fuel Subsidies," American Economic Review, American Economic Association, vol. 104(5), pages 581-85, May. citation courtesy of