The Long-Run Macroeconomic Impacts of Fuel Subsidies in an Oil-Importing Developing Country
29 Pages Posted: 2 Apr 2011
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: Suggested Citation