The incidence of fuel taxation in India

Fuel taxes have returned to centre stage as a potential policy instrument for greenhouse gas abatement. On the basis of some studies in developed countries, critics have complained that a fuel tax would be regressive. This paper uses data from a representative household survey covering more than 124 thousand Indian households to examine this claim. It finds that a fuel tax would be progressive as would a carbon tax. Using an input-output approach, it is found that the progressivity results holds good even when one considers indirect consumption of fuel through its use as an intermediate input. Sensitivity checks allowing for differing price elasticities of demand between rich and poor confirm this result for most of fuels. A tax on kerosene is the only fuel tax that is regressive in all situations.

[1]  I. Coxhead,et al.  Vietnam’s New Environmental Tax Law: What Will it Cost? Who Will Pay? , 2011 .

[2]  Barry Bosworth,et al.  India policy forum , 2009 .

[3]  Jennifer F. Holak,et al.  Analysis of U.S. Greenhouse Gas Tax Proposals , 2008 .

[4]  Lawrence H. Summers,et al.  Tax policy and the economy , 1989 .

[5]  Gunnar Köhlin,et al.  Preferences for domestic fuel: Analysis with socio-economic factors and rankings in Kolkata, India , 2006 .

[6]  Dilip Mookherjee,et al.  MANAGING THE ENVIRONMENTAL CONSEQUENCES OF GROWTH Forest Degradation in the Indian Mid-Himalayas , 2006 .

[7]  T. Sterner.  Fuel taxes : An important instrument for climate policy , 2007 .

[8]  Karl W. Steininger,et al.  Sustainability impacts of car road pricing: A computable general equilibrium analysis for Austria , 2007 .

[9]  Kangni Kpodar.  Distributional Effects of Oil Price Changes on Household Expenditures: Evidence from Mali , 2006, SSRN Electronic Journal.

[10]  Ramakrishnan Ramanathan,et al.  Short- and long-run elasticities of gasoline demand in India: An empirical analysis using cointegration techniques , 1999 .

[11]  S. Younger,et al.  Indirect Tax Incidence in Madagascar: Updated Estimates Using the Input-Output Table , 2003 .

[12]  Haripriya Gundimeda,et al.  Fuel demand elasticities for energy and environmental policies: Indian sample survey evidence , 2008 .

[13]  Sarah E. West.  Distributional Effects of Alternative Vehicle Pollution Control Policies , 2004 .

[14]  G. Santos,et al.  Distributional Consequences of Gasoline Taxation in the United Kingdom , 2005 .

[15]  K. Treanton,et al.  Revised 1996 IPCC guidelines for national greenhouse gas inventories. v. 1: Greenhouse gas inventory reporting instructions.- v. 2: Greenhouse gas inventory workbook.- v.3: Greenhouse gas inventory reference manual , 1997 .

[16]  S. Gangopadhyay,et al.  Reducing subsidies on household fuels in India: how will it affect the poor? ☆ , 2005 .

[17]  A. Meyer.  Economics Of Climate Change , 1995, Nature.

[18]  F. Alpízar,et al.  Fuel Tax Incidence in Developing Countries: The Case of Costa Rica , 2009 .

[19]  Gilbert E. Metcalf,et al.  Behavioral and Distributional Effects of Environmental Policy , 2001 .

[20]  Douglas F. Barnes,et al.  Tackling the rural energy problem in developing countries. , 1997 .

[21]  L. Goulder,et al.  Neutralizing the Adverse Industry Impacts of CO 2 Abatement Policies : What Does It Cost ? , 2000 .

[22]  J. Poterba.  Lifetime Incidence and the Distributional Burden of Excise Taxes , 1989 .

[23]  Kangni Kpodar,et al.  The Distributional Effects of Oil Price Changes on Household Income: Evidence from Mali , 2010 .

[24]  Kangni Kpodar.  Impact de l’accroissement du prix des produits pétroliers sur la distribution des revenus au Mali , 2011 .

[25]  J. Poterba,et al.  Is the Gasoline Tax Regressive? , 1991, Tax Policy and the Economy.

[26]  E. Ziramba,et al.  Economic instruments for environmental regulation in Africa : an analysis of the efficacy of fuel taxation for pollution control in South Africa , 2009 .

[27]  Nicolas Wallart.  The Political Economy of Environmental Taxes , 1999 .