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Fuel subsidies, the oil market and the world economy

Nathan Balke (), Michael Plante () and Mine Yucel

No 1407, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper studies the e ffects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil producing countries with fuel subsidies where retail fuel prices are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing countries. Welfare can also improve in the oil-exporting countries, depending upon the extent to which they are net exporters of oil and on oil supply and demand elasticities.

Keywords: oil prices; fiscal policy; open economy macro; fuel subsidies (search for similar items in EconPapers)
JEL-codes: F41 Q43 E62 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-08-01, Revised 2014-08-01
New Economics Papers: this item is included in nep-ene and nep-mac
Note: Published as: Balke, Nathan S., Michael D. Plante and Mine K. Yucel (2015), "Fuel Subsidies, the Oil Market and the World Economy," The Energy Journal 36 (S): 99-127.
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DOI: 10.24149/wp1407

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