Issues in Domestic Petroleum Pricing in Oil-Producing Countries

Abstract

This paper discusses issues relating to the domestic pricing of petroleum in oil-producing countries. It finds that in most major oil-exporting countries, government policies keep domestic prices below free-market levels, resulting in implicit subsidies that equaled 3.0 percent of GDP, on average, in 1999. Moreover, the paper argues, these petroleum subsidies are inefficient and inequitable - entailing substantial opportunity costs in terms of forgone revenue or productive spending - and also procyclical, complicating macroeconomic management. Nonetheless, the elimination of petroleum subsidies is often politically difficult, although countervailing measures and publicity campaigns can help engender support for reform.

Keywords: Oil, petroleum, subsidies, domestic prices, excises, fiscal policy, incidence

JEL Classification: D61, H2, H5, Q43, Q48