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Compensating against fuel price inflation: Price subsidies or transfers?

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  • Bonnet, Odran
  • Fize, Étienne
  • Loisel, Tristan
  • Wilner, Lionel

Abstract

Compensating agents against substantial and sudden shocks requires both targeting tax policies and taking behavioral responses into account. Based on transaction-level data from France, this article exploits quasi-experimental variation provided by 2022 fuel price inflation and excise tax cuts. After disentangling anticipation from price effects, we estimate a price elasticity of fuel demand of −0.31, on average, which varies little with respect to income and location but substantially decreases with fuel spending, in absolute value. Using targeted transfers only achieves imperfect compensation, yet a budget-constrained policy-maker seeking to alleviate excessive losses relative to income prefers income-based transfers to price subsidies.

Suggested Citation

  • Bonnet, Odran & Fize, Étienne & Loisel, Tristan & Wilner, Lionel, 2025. "Compensating against fuel price inflation: Price subsidies or transfers?," Journal of Environmental Economics and Management, Elsevier, vol. 129(C).
    • Handle: RePEc:eee:jeeman:v:129:y:2025:i:c:s0095069624001530
    DOI: 10.1016/j.jeem.2024.103079
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    More about this item

    Keywords

    Commodity taxation; Excise fuel tax; Tax-and-transfer schemes; Gasoline price elasticity; Anticipatory behavior; Transaction-level data;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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