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Fuel Tax Incidence in Developing Countries: The Case of Costa Rica

Allen Blackman, Rebecca Osakwe and Francisco Alpizar Rodriguez

RFF Working Paper Series from Resources for the Future

Abstract: Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries--all of which are typically major problems--they are often opposed on distributional grounds. Yet few studies have investigated fuel tax incidence in a developing country context. We use household survey data and income-outcome coefficients to analyze fuel tax incidence in Costa Rica. We find that the effect of a 10 percent fuel price hike through direct spending on gasoline would be progressive, its effect through spending on diesel--both directly and via bus transportation--would be regressive (mainly because poorer households rely heavily on buses), and its effect through spending on goods other than fuel and bus transportation would be relatively small, albeit regressive. Finally, we find that although the overall effect of a 10 percent fuel price hike through all types of direct and indirect spending would be slightly regressive, the magnitude of this combined effect would be modest. We conclude that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.

Keywords: fuel tax incidence; transportation; Costa Rica (search for similar items in EconPapers)
JEL-codes: H23 Q48 Q52 Q56 R48 (search for similar items in EconPapers)
Date: 2009-10-20
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (2)

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Journal Article: Fuel tax incidence in developing countries: The case of Costa Rica (2010) Downloads
Working Paper: Fuel Tax Incidence in Developing Countries: The Case of Costa Rica (2009) Downloads
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