The Long-Run Macroeconomic Impacts of Fuel Subsidies in an Oil-Importing Developing Country

29 Pages Posted: 2 Apr 2011

See all articles by Michael Plante

Michael Plante

Federal Reserve Bank of Dallas; Indiana University Bloomington - Center for Applied Economics and Policy Research

Date Written: March 31, 2011

Abstract

Analytical and numerical results show how the presence of a subsidy on household and firm purchases of oil products distorts long-run macroeconomic aggregates in an oil-importing developing country. Beyond leading to over-consumption of oil products these subsidies also lead to increased labor supply, a distorted emphasis on producing traded goods, and higher real wages. The subsidy also impacts the relative price of non-traded goods, causing it to fall when the non-traded sector is more oil-intensive than the traded sector and vice-versa.

Keywords: oil, fuel-price subsidies, developing countries, fiscal policy

JEL Classification: Q43, E62, H30, O23

Suggested Citation

Plante, Michael D., The Long-Run Macroeconomic Impacts of Fuel Subsidies in an Oil-Importing Developing Country (March 31, 2011). Available at SSRN: https://ssrn.com/abstract=1800075 or http://dx.doi.org/10.2139/ssrn.1800075

Michael D. Plante (Contact Author)

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Indiana University Bloomington - Center for Applied Economics and Policy Research ( email )

100 South Woodlawn Avenue, Wylie Hall 250
Bloomington, IN 47405-1704
United States

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