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The effect of European fuel-tax cuts on the oil income of Russia

Author

Listed:
  • Johan Gars

    (The Royal Swedish Academy of Sciences)

  • Daniel Spiro

    (Uppsala University)

  • Henrik Wachtmeister

    (Uppsala University)

Abstract

Following Russia’s invasion of Ukraine, there has been a surge in transport fuel prices. Consequently, many European Union (EU) countries are cutting taxes on petrol and diesel to shield consumers. Using standard theory and empirical estimates, here we assess how such tax cuts influence the oil income in Russia. We find that an EU-wide tax cut of €0.20 l−1 increases Russia’s oil profits by around €8 million per day in the short and long term. This is equivalent to €3,100 million per year, 0.2% of Russia’s gross domestic product or 5% of its military spending. We show that a cash transfer to EU citizens—with a fiscal burden equivalent to the tax cut—reduces these side effects to a fraction.

Suggested Citation

  • Johan Gars & Daniel Spiro & Henrik Wachtmeister, 2022. "The effect of European fuel-tax cuts on the oil income of Russia," Nature Energy, Nature, vol. 7(10), pages 989-997, October.
    • Handle: RePEc:nat:natene:v:7:y:2022:i:10:d:10.1038_s41560-022-01122-6
    DOI: 10.1038/s41560-022-01122-6
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    Cited by:

    1. Yuru Guan & Jin Yan & Yuli Shan & Yannan Zhou & Ye Hang & Ruoqi Li & Yu Liu & Binyuan Liu & Qingyun Nie & Benedikt Bruckner & Kuishuang Feng & Klaus Hubacek, 2023. "Burden of the global energy price crisis on households," Nature Energy, Nature, vol. 8(3), pages 304-316, March.
    2. Pier Basaglia & Sophie M. Behr & Moritz A. Drupp, 2023. "De-Fueling Externalities: How Tax Salience and Fuel Substitution Mediate Climate and Health Benefits," Discussion Papers of DIW Berlin 2041, DIW Berlin, German Institute for Economic Research.
    3. Henrik Wachtmeister & Johan Gars & Daniel Spiro, 2022. "Quantity restrictions and price discounts on Russian oil," Papers 2212.00674, arXiv.org, revised Dec 2022.
    4. Pier Basaglia & Sophie M. Behr & Moritz A. Drupp, 2023. "De-Fueling Externalities: Causal Effects of Fuel Taxation and Mediating Mechanisms for Reducing Climate and Pollution Costs," CESifo Working Paper Series 10508, CESifo.
    5. Zhu, Huiming & Li, Shuang & Huang, Zishan, 2023. "Frequency domain quantile dependence and connectedness between crude oil and exchange rates: Evidence from oil-importing and exporting countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 1-30.

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