Working Paper
Fuel subsidies, the oil market and the world economy
Abstract: This paper studies the e ffects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil producing countries with fuel subsidies where retail fuel prices are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing countries. Welfare can also improve in the oil-exporting countries, depending upon the extent to which they are net exporters of oil and on oil supply and demand elasticities.
Keywords: oil prices; fuel subsidies; fiscal policy; open economy macro;
JEL Classification: E62; F41; Q43;
https://doi.org/10.24149/wp1407
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Bibliographic Information
Provider: Federal Reserve Bank of Dallas
Part of Series: Working Papers
Publication Date: 2014-08-01
Number: 1407
Note: Published as: Balke, Nathan S., Michael D. Plante and Mine K. Yucel (2015), "Fuel Subsidies, the Oil Market and the World Economy," The Energy Journal 36 (S): 99-127.