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

Abstract

This chapter consists of three sections focused on the three major, non-pollution-related externalities from motor vehicles: traffic congestion, traffic accidents, and (to a much lesser extent) wear and tear on the road network (relevant for trucks). Other data and assumptions needed to implement the corrective motor fuel tax formulas from Chapter 3 are discussed in the annexes to this chapter.

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

Abstract

Many energy prices in many countries are wrong. They are set at levels that do not reflect environmental damage, notably global warming, air pollution, and various side effects of motor vehicle use. In so doing, many countries raise too much revenue from direct taxes on work effort and capital accumulation and too little from taxes on energy use.

Mr. Shahabuddin M Hossain

assumption that the proportion of road damage attributable to environmental damage under wet nonfreezing conditions is only 30 percent; this implies that road damage costs attributable to traffic loading are 70 percent (N38.2 billion in 2002). Compute the unit road damage cost by distributing the amount uniformly across the volume of gasoline and diesel used as road transport fuel. The unit road damage costs estimated following this methodology amount to N3.9 per liter in 2002. Compute congestion costs as follows: the congestion unit cost is two-thirds of the sum of (a

International Monetary Fund. Western Hemisphere Dept.

$ 0.36/liter and US$ 0.20/liter for gasoline and diesel, respectively. The total accident cost in Trinidad and Tobago in 2015 is estimated to be about US$ 405 million, reflecting both a high fatality valuation and rapid growth of the number of road vehicles. 4 Road damage cost : Vehicle use causes an additional adverse side effect through wear and tear on the road network. Road damage consists both of the pavement repair costs incurred by the government and increased operating costs for vehicles attributable to bumpier roads. Based on peer country data from World