Assessing a fuel subsidy: Dynamic effects on retailer pricing and pass-through to consumers

Jacint Balaguer and Jordi Ripollés

Energy Economics, 2024, vol. 138, issue C

Abstract: This paper aims to investigate whether fuel retailers strategically increased prices following a subsidy intended to cover a mandatory discount and to assess its impact on transmission to consumers. Introduced by the Spanish government in April 2022 to counter soaring fuel prices resulting from the Ukraine conflict, the impact of this subsidy is analyzed using a nonlinear autoregressive distributed lag-ECM to estimate counterfactual net prices over a three-month period. The analysis shows that the price reaction during the subsidy period differed by fuel type and timing. While evidence of price responses for gasoline is generally lacking, significant responses are estimated for diesel. Gas stations operated by major companies, which received a subsidy covering 80% of the required discount, increased diesel net prices by about 3 cents per liter during the analyzed period. In contrast, stations independent of these companies, whose discount was fully subsidized, raised their prices by approximately 6 cents per liter. The pass-through to diesel consumers at these independent stations has been around 60% on average, falling well below that by the end of the period. Some caution is warranted when implementing this policy measure, given the notably incomplete pass-through revealed in the most important fuel product and the largest group of stations.

Keywords: Retail fuel prices; Subsidy; Pass-through (search for similar items in EconPapers)
JEL-codes: D43 H25 L91 Q48 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988324005541
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:138:y:2024:i:c:s0140988324005541

DOI: 10.1016/j.eneco.2024.107846

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().