Illicit Schemes: Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling

Jun Erik Maruyama Rentschler and Nobuhiro Hosoe

No 9907, Policy Research Working Paper Series from The World Bank

Abstract: This study develops a computable general equilibrium model for Nigeria, which accounts for informality, tax evasion, and fuel smuggling. By studying the impact of fuel subsidy reform on consumption, tax incidence, and fiscal efficiency, it shows that the presence of illicit activities substantially strengthens the argument in favour of subsidy reform: First, fuel subsidy reform can shift the tax base to energy goods, which are less prone to tax evasion losses than for instance labour. Second, by reducing price differentials with neighbouring countries, subsidy reform reduces incentives for fuel smuggling. Overall, the results show that considering illicit activities reduces the welfare losses of fuel subsidy reform by at least 40 percent. In addition, fuel subsidy reductions (and by extension energy tax increases) have a strong progressive distributional impact. The findings hold under different revenue redistribution mechanisms, in particular uniform cash transfers and the reduction of pre-existing labour taxes.

Keywords: Social Conflict and Violence; Tax Law; Economic Assistance; Access of Poor to Social Services; Disability; Services & Transfers to Poor; Energy and Environment; Energy and Mining; Energy Demand; Energy Policies & Economics (search for similar items in EconPapers)
Date: 2022-01-20
New Economics Papers: this item is included in nep-ene, nep-env and nep-iue
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://documents.worldbank.org/curated/en/63195164 ... on-and-Smuggling.pdf (application/pdf)

Related works:
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:wbk:wbrwps:9907

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().