Compensating against fuel price inflation: Price subsidies or transfers?

Odran Bonnet, Étienne Fize, Tristan Loisel and Lionel Wilner

Journal of Environmental Economics and Management, 2025, vol. 129, issue C

Abstract: Compensating agents against substantial and sudden shocks requires both targeting tax policies and taking behavioral responses into account. Based on transaction-level data from France, this article exploits quasi-experimental variation provided by 2022 fuel price inflation and excise tax cuts. After disentangling anticipation from price effects, we estimate a price elasticity of fuel demand of −0.31, on average, which varies little with respect to income and location but substantially decreases with fuel spending, in absolute value. Using targeted transfers only achieves imperfect compensation, yet a budget-constrained policy-maker seeking to alleviate excessive losses relative to income prefers income-based transfers to price subsidies.

Keywords: Commodity taxation; Excise fuel tax; Tax-and-transfer schemes; Gasoline price elasticity; Anticipatory behavior; Transaction-level data (search for similar items in EconPapers)
JEL-codes: D12 H23 H31 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Compensating against fuel price inflation: Price subsidies or transfers? (2024)
Working Paper: Compensating against fuel price inflation: Price subsidies or transfers? (2024)
Working Paper: Compensating against fuel price inflation: Price subsidies or transfers? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:129:y:2025:i:c:s0095069624001530

DOI: 10.1016/j.jeem.2024.103079

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