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The long-run macroeconomic impacts of fuel subsidies in an oil-importing developing country

Michael Plante ()

MPRA Paper from University Library of Munich, Germany

Abstract: Analytical and numerical results show how the presence of a subsidy on household and firm purchases of oil products distorts long-run macroeconomic aggregates in an oil-importing developing country. Beyond leading to over-consumption of oil products these subsidies also lead to increased labor supply, a distorted emphasis on producing traded goods, and higher real wages. The subsidy also impacts the relative price of non-traded goods, causing it to fall when the non-traded sector is more oil-intensive than the traded sector and vice-versa.

Keywords: oil; fuel-price subsidies; developing countries; fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 H30 O23 Q43 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-cwa, nep-ene and nep-mac
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