Why Do Governments Tax or Subsidize Fossil Fuels?

Paasha Mahdavi, Cesar Martinez-Alvarez and Michael Ross
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Paasha Mahdavi: University of California, Santa Barbara
Cesar Martinez-Alvarez: University of California, Los Angeles
Michael Ross: University of California, Los Angeles

No 541, Working Papers from Center for Global Development

Abstract: Governments have long faced pressure to address the climate crisis by increasing taxes on fossil fuels, which are the source of more than three-quarters of the world’s anthropogenic carbon pollution. Since fossil fuel taxes and subsidies are hard to measure, it is unclear how much government policies have changed. Using original high-frequency data on gasoline taxes and subsidies in 157 countries, we establish three ï¬ ndings: despite rising alarm about climate change, from 2003 to 2015 there was little net change in fuel taxes and subsidies at a global level; fuel taxes and subsidies appear to be driven by slow-moving economic factors, primarily income and fossil fuel wealth; and reforms, when they occur, are overwhelmingly associated with country-level political conditions that follow no readily-discernible patterns. These patterns are consistent with a model in which fossil fuel taxes are determined by a country’s income and revenue needs, not its environmental commitments.

Keywords: Gasoline taxes; carbon taxes; fossil fuel subsidies; tax reform; climate policy; environmental politics; political economy (search for similar items in EconPapers)
JEL-codes: H23 Q35 Q38 Q5 Q54 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2020-08-18
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cgd:wpaper:541

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