Fuel Tax Incidence in Developing Countries: The Case of Costa Rica

25 Pages Posted: 18 Feb 2010

See all articles by Allen Blackman

Allen Blackman

Inter-American Development Bank (IDB)

Rebecca Osakwe

CATIE-SEBSA

Francisco Alpizar

Tropical Agricultural and Higher Education Center

Date Written: October 20, 2009

Abstract

Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries - all of which are typically major problems - they are often opposed on distributional grounds. Yet few studies have investigated fuel tax incidence in a developing country context. We use household survey data and income-outcome coefficients to analyze fuel tax incidence in Costa Rica. We find that the effect of a 10 percent fuel price hike through direct spending on gasoline would be progressive, its effect through spending on diesel - both directly and via bus transportation - would be regressive (mainly because poorer households rely heavily on buses), and its effect through spending on goods other than fuel and bus transportation would be relatively small, albeit regressive. Finally, we find that although the overall effect of a 10 percent fuel price hike through all types of direct and indirect spending would be slightly regressive, the magnitude of this combined effect would be modest. We conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.

Keywords: fuel tax incidence, transportation, Costa Rica

JEL Classification: Q52, Q56, Q48, R48, H23

Suggested Citation

Blackman, Allen and Osakwe, Rebecca and Alpizar, Francisco, Fuel Tax Incidence in Developing Countries: The Case of Costa Rica (October 20, 2009). Available at SSRN: https://ssrn.com/abstract=1505423 or http://dx.doi.org/10.2139/ssrn.1505423

Allen Blackman (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Rebecca Osakwe

CATIE-SEBSA ( email )

Costa Rica

Francisco Alpizar

Tropical Agricultural and Higher Education Center ( email )

Turrialba
Costa Rica

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