The Oil Price Shock in Central America: Fiscal and Energy Implications

Daniel Artana, Fernando Navajas and Marcelo Catena

No 4555, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: This paper studies the fiscal and energy implications of the surge in petroleum prices, estimating both direct and indirect effects. Since these economies are in an expansionary phase, it estimates a "latent" impact on GDP, which in turn leads to a latent loss in fiscal revenue of an average 0. 7% of GDP among countries. In contrast to this latent effect, the direct observed loss in tax collections from hydrocarbons is estimated at 0. 4% of GDP; again, there are differences among countries. Additionally, the explicit subsidies vary among countries but on average represent 1% of GDP. In summary, the combination of average direct and indirect fiscal effects among countries is estimated at 1. 4% of GDP for the 2003-06 period (rising to 2. 1% if latent effects are considered). Then, the paper considers how to intervene in the shaping of prices and the level of oil tax cushioning required in the various countries. The greater or lesser effect of the shock on local fuel costs was traced to varying difficulties in the electric and trasport sectors, which in turn impacted prices, taxes and subsidies. Finally, the paper discusses strategies based on possible mechanisms such as stabilization funds and makes general and country-specific suggestions.

Date: 2007-10
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