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Alan Walters

the motorist himself; Social Cost (b) variable maintenance cost—borne by the public road authority; (c) congestion cost—borne by all other users of the road. The central problem of a policy for user charges is to deal with (b) and particularly (c). Reflecting Costs in Motorist’s Accounts Since the sum of these three elements constitutes the resources (i.e., the goods and services) foregone due to the vehicle journey, it is clear that all three costs should be reflected in the motorist’s accounts. If these costs are not properly exacted from

International Monetary Fund. Western Hemisphere Dept.
This paper reviews the historical background of fuel subsidies in Trinidad and Tobago, discusses their fiscal impact and the inflationary impact of subsidy reform, summarizes the regressive distribution of subsidy benefits, focuses on the negative externalities caused by fuel subsidies and the environmental and traffic benefits of phasing them out, and discusses key factors contributing to successful reforms. Fuel subsidies in Trinidad and Tobago, established in 1974, increased dramatically owing to rising global crude oil price in the past few years and led to a growing debate on the costs and benefits of subsidy reform. Fuel subsidies have significantly contributed to the country’s procyclical fiscal stance.
Mr. Shahabuddin M Hossain
Using the modern theory of public economics as the point of departure, this paper outlines a basic principle for setting taxes and/or prices of commodities based on two key criteria, efficiency and equity. The paper shows that for petroleum products, the basic principle needs modification in the presence of various externalities and market imperfections in a setting where the instruments to address the externalities and imperfections are limited. Drawing from theoretical and empirical literature, the paper provides an operational framework and then illustrates how, for a country like Nigeria, the relevant taxes/subsidies to correct the externalities and to address equity and revenue considerations can be measured with a view to setting prices of petroleum products. However, the paper refrains from making any specific suggestion for policy reform in Nigeria. The framework outlined in the paper can be applied to the analysis of petroleum product taxes and prices in other developing countries.
Mr. David Coady, Ian W.H. Parry, Nghia-Piotr Le, and Baoping Shang

This paper updates estimates of fossil fuel subsidies, defined as fuel consumption times the gap between existing and efficient prices (i.e., prices warranted by supply costs, environmental costs, and revenue considerations), for 191 countries. Globally, subsidies remained large at $4.7 trillion (6.3 percent of global GDP) in 2015 and are projected at $5.2 trillion (6.5 percent of GDP) in 2017. The largest subsidizers in 2015 were China ($1.4 trillion), United States ($649 billion), Russia ($551 billion), European Union ($289 billion), and India ($209 billion). About three quarters of global subsidies are due to domestic factors—energy pricing reform thus remains largely in countries’ own national interest—while coal and petroleum together account for 85 percent of global subsidies. Efficient fossil fuel pricing in 2015 would have lowered global carbon emissions by 28 percent and fossil fuel air pollution deaths by 46 percent, and increased government revenue by 3.8 percent of GDP.

Ian W.H. Parry, Mr. Dirk Heine, Eliza Lis, and Shanjun Li


Energy taxes can produce substantial environmental and revenue benefits and are an important component of countries’ fiscal systems. Although the principle that these taxes should reflect global warming, air pollution, road congestion, and other adverse environmental impacts of energy use is well established, there has been little previous work providing guidance on how countries can put this principle into practice. This book develops a practical methodology, and associated tools, to show how the major environmental damages from energy can be quantified for different countries and used to design the efficient set of energy taxes.

Ian W.H. Parry, Mr. Dirk Heine, Eliza Lis, and Shanjun Li

vehicle, averaged across different roads in a country and across times of day. This cost estimate can then be used in the formula for corrective motor fuel taxes ( equation (3.1) ). As noted in Chapter 3 , to manage congestion on the road network most effectively, countries should ideally transition to kilometer-based taxes that vary with the prevailing degree of congestion on different roads. However, until these schemes are comprehensively implemented, charging motorists for congestion costs through fuel taxes is entirely appropriate. The congestion cost has two

International Monetary Fund. Western Hemisphere Dept.

, and various transportation indicators, including real GDP per capita, annual car-kilometers, road capacity per car, and cars in use per capita. Then the average congestion delays are translated into a marginal congestion cost of one vehicle to other vehicles, taking into account its contribution to average congestion delays and the value of travel time (VOT). 1 This yields a marginal congestion cost of US$ 0.23/liter in 2015. 2 Trinidad and Tobago’s total daily fuel consumption in 2013 is about 42.0 thousand barrels/day, of which 12 thousand barrels are motor

International Monetary Fund

2010 ). While estimates of the total cost of congestion vary widely (0.2–4.2 percent of GDP) depending on the definition of the congestion cost and the exact method employed, the Netherlands features generally among the countries with highest costs. The large network of roads in the Netherlands is not sufficient due to the elevated population density and the transit character of the country. High congestion is also the result of the preference for passenger car transportation as opposed to public transportation. More investment in roads, while needed, could also have

International Monetary Fund. European Dept.

overall external cost of transport adds up to €274 million in the same year, equal to almost 4 percent of 2012 GDP. In a “no policy change” scenario, the congestion cost is estimated to rise to €154 million by 2030, and the overall external cost of transport will rise to €322 by the same year. Road Congestion, 2015 (Average annual hours per vehicle) Note: Malta’s geography and urbanization affect cross country comparability. Source: European Commission. Malta is responding with a comprehensive National Transport Strategy and targeted road improvements