EconPapers    
Economics at your fingertips  
 

Biofuel subsidies: an open-economy analysis

Subhayu Bandyopadhyay (), Sumon Bhaumik () and Howard Wall ()

No 2009-053, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We present a general equilibrium analysis of biofuel subsidies in an open-economy context. In the small-country case, when a Pigouvian tax on conventional fuels such as crude is in place, the optimal biofuel subsidy is zero. When the tax on crude is not available as a policy option, however, a second-best biofuel subsidy (or tax) is optimal. In the large-country case, the optimal tax on crude departs from its standard Pigouvian level and a biofuel subsidy is optimal. A biofuel subsidy spurs global demand for food and confers a terms-of-trade benefit to the food-exporting nation. This might encourage the food-exporting nation to use a subsidy even if it raises global crude use. The food importer has no such incentive for subsidization. Terms-of-trade effects wash out between trading nations; hence, any policy intervention by the two trading nations that raises crude use must be jointly suboptimal.

Keywords: Macroeconomics; Economic conditions (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-ene
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://research.stlouisfed.org/wp/2009/2009-053.pdf (application/pdf)

Related works:
Working Paper: Biofuel Subsidies: An Open-Economy Analysis (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2009-053

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().

 
Page updated 2019-08-22
Handle: RePEc:fip:fedlwp:2009-053