How to measure global fuels subsidies

fuel subsidy

There are countries providing fuels under current market price through subsidies mechanism. Check out the following countries: Saudi Arabia, Venezuale, Iran, Indonesia and Egypt. Obviously, Fuel subsidies have a large impact on government budgets

Hence an assessment has been done to measure “deadweight loss” of fuels subsidies. According Lucas W Davis, the author, subsidies create deadweight loss by enabling transactions for which the buyer’s willingness-to-pay is below the opportunity cost.

“High level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel, ” says Lucas in his paper. Lucas examined global fuel subsidies using the latest available data from the World Bank. He found that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012.

“Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual dead weight loss worldwide is $44 billion,” says Lucas.

Read complete paper here:
http://d.repec.org/n?u=RePEc:nbr:nberwo:19736&r=agr

download here
http://www.nber.org/papers/w19736.pdf