Heterogeneous and dynamic pass-through of a fuel subsidy to consumers: Evidence from Spain

Manuel Hidalgo-Pérez (), Natalia Collado () and Ángel Martínez-Jorge ()
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Manuel Hidalgo-Pérez: Universidad Pablo de Olavide
Natalia Collado: Universidad de Comillas
Ángel Martínez-Jorge: AFI

No 25.01, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: The outbreak of the COVID-19 pandemic and Russia’s invasion of Ukraine in early 2022 severely disrupted energy markets, triggering a spike in global oil prices. To mitigate the impact on consumers, Spain introduced a fuel discount of 20 cents per liter, effective until the end of 2022. This study assesses the pass-through of the discount to retail prices using a combination of regression discontinuity (RD), difference-in-differences (DiD), and quantile regression approaches with daily data from over 11,000 Spanish petrol stations. We analyze how different types of operators—vertically integrated, branded, and independent—responded to the policy and examine its impact on the retail price distribution. The results reveal a negative relationship between a station’s initial price and the pass-through of the discount, with lower-priced stations raising prices more in response to the policy. This pattern is particularly pronounced for diesel and among independent and retailer-managed branded stations, which captured a larger share of the subsidy. The quantile regressions further highlight that price increases were concentrated in the lower end of the price distribution, amplifying differences across station types. However, our DiD analysis shows that these effects were temporary, with price differentials gradually converging after approximately 36 to 43 days. Overall, the findings highlight how generalized public discounts can temporarily distort market dynamics and affect competitive conditions in the market. The study offers insights for the design of future subsidy programs, particularly regarding the role of market structure and financial constraints in shaping pass-through.

Keywords: pass-through; discount; retail fuel prices; market structure; regression discontinuity; DiD; quantile regression. (search for similar items in EconPapers)
JEL-codes: D12 Q41 Q48 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2025
New Economics Papers: this item is included in nep-cis, nep-com, nep-eur, nep-inv and nep-tre
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