The paper “Fuel Tax Incidence in Developing Countries” posed some interesting questions concerning the costs and benefits of imposing a fuel tax in a developing country—in this case, Costa Rica. Such a tax would hopefully mitigate the negative externalities associated with increasing fuel use, such as air pollution, street congestion, and traffic accidents that result from increased vehicle use. The authors also briefly mentioned the tax revenue that could accrue from such a tax, but they didn’t specify whether the main objective of such a tax would be to curb consumption or to increase revenue.
The fundamental question associated with such a tax would be: where does the burden of the tax fall? The fuel tax may be progressive through the direct taxation of gasoline, which fuel cars of the upper class. However, such a tax could also have regressive effects if diesel is taxed, raising public transportation costs. On the net, fuel taxes seem to be marginally regressive, but policymakers have the ability to mitigate the distributional problems, placing greater weight on the upper classes through taxing principally the direct consumption of gasoline. The authors mentioned that the lower classes could be helped furthermore by using the tax revenue accrued from the upper classes to subsidize bus travel. This policy would both help the lower classes and promote environmental sustainability.
I thought the fact that this paper examined the differences on where the tax burden would fall between gasoline and diesel was really interesting- I hadn't thought to consider them separately before. This paper essentially treats diesel, at least in its use for public transportation, as an inferior good. As incomes rise, people substitute gasoline instead, because they buy more of their own cars. I wonder how high the tax would be before significant numbers of people started buying diesel fueled cars instead? What would be an appropriate policy to discourage this, as the authors mentioned that diesel engines produce more pollution than gas- maybe an additional car tax on diesel engines, but not on buses, so as not to hurt public transportation companies?
I also wonder how the results from this paper apply to rural poor communities, who are more reliant on car transportation than their urban counterparts. Because they do not have access to public transportation, they could not substitute use of buses for cars if the gas tax were to increase. Maybe a voucher or subsidy to offset the cost increase would be appropriate? On the other hand, do they even have enough access to any form of transportation, car or otherwise, for a gas/diesel tax to affect them?
The article highlights a few main points and concerns for the developing world moving forward. As the authors point out, the developing world contributes to air pollution, and will most likely increase its proportion of pollution compared to the developed world in the future. As the authors also point out, an incentive – based way to stop this would be to tax fuel consumption. The results of the data show, however, that a tax on diesel would be regressive and increase inequality. The tax on gasoline would be progressive, reducing inequality, but would also be ineffective as the use of gasoline is much less than the use of diesel. In order to cut emissions, a tax on diesel would be required, but it would put the poor at a disadvantage from both first order and second order effects. Developing countries find themselves in an interesting position, then, moving forward, as it appears as though a choice must be made between increased equality or decreased emissions, unless countries choose a policy like what the authors suggest at the end, where the diesel tax is used to subsidize bus rides.
The paper was a pretty interesting read with a large focus on whether or not an implementation of a fuel tax would have progressive or regressive effects. In my opinion the paper was able to show us the importance of custom tailoring tax policy. The author really liked to stress the idea of progressive/regressive for the obvious reason that the progressive tax policy will lend itself to greater behavioral changes and not unfairly subject low income persons to further pressure. Yet, I do think it would have been interesting to see the authors focus more on quantifying net welfare effects and an optimal gasoline/diesel tax.
It seems that a large issue with raising the price of diesel gasoline is its harmful effect on the price of bus fare. I think this emphasis is important due to large amounts of positive externality loss resulting from a decrease in the use of public transportation (increased congestion, greater emissions). Earlier in the paper, the author states that only 21 percent of bus fare is related to the price of fuel. He combines this observation with the helpful suggestion of using the tax revenue to subsidize bus tickets. I believe that subsidy to bus fare or promotion of an effective rail system makes the most sense as an incentive to decrease congestion while forgoing regressive effects. Furthermore, it would have been interesting to hear the author’s comments on relative effectiveness of taxation on low mileage cars vs. increased taxes on gasoline itself.
The authors stress the severity of problems arising from increased vehicle use: air pollution, congestion, and accidents. Unique challenges face developing countries where options that could be used to curtail these negative externalities in developed countries, such as inspections programs, fuel economy standards, and technology mandates, are not feasible because of implementation and regulation difficulties. The ideal answer seems to lie in a simple flat rate fuel tax, which often generates opposition on distributional grounds because it is claimed to be regressive. Results from a regression that implemented a 10 percent price hike on fuel show that gasoline taxes are progressive while diesel taxes are regressive, suggesting that differentiating fuel taxes could be an effective way to reduce the burden on low-income citizens. Typically, only wealthier individuals own cars, and poorer households rely on bus transportation, thus explaining different tax burdens. As Kali pointed out, whether it is possible to differentiate fuel taxes without providing perverse incentives remains to be seen. An increase in gasoline taxes in Europe led to increased purchases of diesel cars, which pollute more than gasoline-fueled vehicles. Therefore all implications of a fuel tax must be examined before implementation. An important aspect may lie in revenue recycling: where are the funds earned from the tax allocated? Perhaps they should go towards developing more fuel-efficient vehicles, a reliable and efficient public transportation system, or bus subsidies in order to further the initiative’s goals of reducing negative externalities.
I think the issue that Andrew raises about the positive correlation that exists between development and pollution is an interesting and troubling one. Though the relationship between the two is easy to understand and observe, the solution is not, as the authors allude to. In the article, the authors examine fuel tax as a means of retarding the increase in pollution levels as development increases. I am not convinced that this is an effective method of achieving this goal, however. The authors say that the social welfare maximizing increase in fuel prices has yet to be determined and that it is “safe to assume that a 10 percent price hike would still fall short”(13). This leads me to believe that the concern that they raise about the potential for fuel taxes increasing inequality is a valid and likely outcome. In reading this article, I had a difficult time pinpointing exactly socially beneficial outcomes, if any, would result from the proposed implementation of a fuel tax. It seems to me that the nearly negligible positives would be far outweighed by the increased inequality and the negative externalities that would result. Thus, though I think they are addressing a very pertinent issue, I believe there is still considerable progress to be made towards finding a viable solution to the issue of increased vehicular air pollution in developing countries.
Blackman et al. look into the effect of a fuel tax on the Costa Rican economy in this essay. They assert that fuel taxes are needed to improve the environment (air pollution) and alleviate some of the congestion and other traffic issues that plague Costa Rica. The problem is that fuel taxes, in general, seem to be regressive, especially to the more poor deciles in the community. They set out to prove that what is needed is a differentiation between gasoline and diesel taxes to combat this problem, as gasoline taxes do not seem to be regressive. Blackman et al. reveal that a tax on diesel would be particularly hard on the poor, as they rely heavily on the bus system for transportation. Therefore, a tax on gasoline would be a better option. Now, there must also be an incentive to ensure that consumers and businesses will not overuse diesel (as it would be much cheaper). Blackman et al. point out that a solution to this problem could be to take revenue from gasoline taxes to subsidize bus travel.
I found a few points that Blackman et al. made interesting. They noted that policymakers have had issues with regulation, which may make any efforts to help the situation useless. I wonder how effective such a gasoline tax would be and if it would be succumb to much political backlash from the community. They also pointed out that a 10% tax increase may not be effective in improving the welfare of a society, citing the Mexico City example where they would need a 1600% tax increase!!!!
The primary appeal of this study is that it actually measures behavioral changes due to a tax hike. It brings numbers and reality to energy policy by measuring the price elasticity of the demand for both diesel and gasoline. However, the most interesting part of this issue is barely mentioned in the article (as Elizabeth pointed out), and that is the net gain or loss in social welfare due to this tax.
In order to avoid welfare loss from such a tax, the fuel tax revenue would have to be reallocated in order to raise welfare in another way. The study briefly mentioned using the revenue to lower income taxes, which is in accordance with the principle from Econ 255 of taxing "bads" (such as emissions or traffic) and not "goods" (like income). If done correctly, this would lead to no net change in government revenue and little change in a consumer's discretionary income. Social welfare would increase due to the social benefits of the fuel tax effect(a decrease in traffic congestion and air pollution). If energy policy is not comprehensive in its implementation, then it can be regressive and lead to net welfare loss. For this reason, the reallocation of tax revenue is the most important part of an energy tax.
This article raises an essential problem that plagues many developing countries: pollution. The consumption of gas and proliferation of vehicular usage in developing countries raise many environmental and health concerns. About 10 years ago, when I landed in Delhi, I would cough a lot because of the soot and unclean air. As public transportation increased, the government switched to natural gas which has cleaned up the air substantially. Especially in Southern India, such as Andhra Pradesh, the state government charges 33% tax on petrol and 22% tax on diesel.
This article makes a distinction between gasoline and diesel prices, which I had never thought of before. Diesel affects those in the lower socioeconomic brackets more because of public bus transportation. It seems to make sense, policy-wise, that in India, diesel taxes are less than petrol taxes. Studies that determine the amount of usage of diesel versus gasoline will give better insight on how to differentiate these policies.
The first thing that I was struck by in the article was the author’s ability to differentiate the affects of a fuel tax between regular fuel and diesel fuel. While this distinction is critical for assessing the progressive or regressive nature of a fuel tax, it seems like the kind of detail that may go unnoticed when policies are crafted from economic data, leading to unexpected and undesirable consequences. I was also impressed that the Costa Rican government not only took account of this difference but crafted legislation that would partially negate the regressive nature of a fuel by taxing gasoline at a higher rate than diesel. Maybe I’m just cynical, but I doubt such careful and thoughtful policymaking would have occurred in the U.S. Additionally, I do think the author’s recommendations of more subsidies for public transport (in the form of buses, in this case) could help society at large, since doing so could cut commute times and decrease the cost of commuting, allowing those who use mass transit to spend more of their money on items of their personal preference. I also think that investment in technology for mass transport (maybe by imitating clean-burning diesel technology or adopting hybrid bus engines from developed economies) could help negate some of the first order consequences of widespread bus usage (emissions of greenhouse gases, higher prices being paid for diesel etc). I was also left wondering if a switch en-masse to diesel cars would be such an awful thing for the Costa Rica economy. Diesel engines usually get mileage per gallon than regular gasoline engines and, as clean diesel technology makes its way downstream from premium-priced cars (Volkswagen’s TDI engines are one example: info at http://tdi.vw.com/clean-diesel-vehicles/ and http://www.greencar.com/articles/new-2010-vw-golf-offers-tdi-clean-diesel-option.php), the technology will become more widely available and more affordable. While this might mean more cars on the road, those cars would each at least be adding fewer tons of emissions to the atmosphere. I also wanted to pose one last question to end this really here-there-and-everywhere post. Costa Rica has a relatively well established mass transport industry consisting of the “quasi-public…bus transportation” systems, which allows its poorer classes (or those not wanting to drive themselves to commute to work via mass transit (16). What would the affect of a fuel tax be if no such systems existed and the commuting classes’ only options were to drive (or carpool) or provide their own method of transport (walk, bike etc)? Would that scenario change the progressive or regressive nature of the fuel tax? --Scott
The negative consequences of pollution and accidents are obviously attributed to the development and growth of use of both diesel and gasoline burning vehicles. While there is a hope of instituting a fuel tax to help improve the problems that Costa Rica faces, it is hard to find a solution that would not hinder growth to greater equality in society. While a fuel tax on regular gasoline seems like a viable option since most wealthy citizens have gasoline burning cars, it is important that they keep it at a reasonable level in order not to push it too far and have everyone buying diesel cars and therefore burning more harmful diesel fuel. This has been happening recently in Europe with the increasing prices of gasoline. However, keeping the tax at a lower level is also a problem as well because a large tax would be needed to improve the welfare of society overall. This is a complex issue and the end of the article presents the fact that "distributional, political, fiscal, and environmental goals" must be balanced in order to effectively institute a tax to help boost the welfare of society. Finally, I believe that Costa Rica's government needs to weigh the opportunity cost of not placing a tax on fuel with regard to the long term detrimental effects that the growing level of pollution will have on society.
This article brings the issue of pollution to the forefront, a problem that can often be overlooked when addressing ways to help bring developing countries out of the poverty trap. However, as noted in the article, this should not be overlooked due to the negative externalities associated with pollution. My biggest questions arise from the fact that the implementation of fuel taxes heavily relies on policymakers, in other words, the government. Now, this study looks at Costa Rica, which is classified by the World Bank as a "upper middle income country." As such, I wonder how effective this feul tax would be in middle income countries, let alone lower middle income countries. Governments tend to be more corrupt and ineffective in poorer developing nations, and could have a harder time not only imposing taxes but collecting the revenue. It would be interesting to see further studies look into ways to cut pollution that don't require as much government involvement.
As Kali, Kyle, and Katie have discussed earlier, It appears that there are several ways for the government to turn a regressive fuel tax into a redistribution of wealth as well as a method to reduce the primary sources of air pollution in Costa Rica. Going back to an important point that gomrmaner11 made, the authors left it fairly vague as to what this tax is designed to do. If it is designed to create revenue for the government, then the amount of funding for the programs that Kali, Kyle, and Katie proposed might be infeasible. However, if we assume that that this tax is meant to curtail demand for fuel, then we can assume that at least a sizable portion of the revenue can be fed back into the transportation system. I agree that subsidies for public transportation (diesel) will help to offset the toll that the tax will have on low-income individuals, as well as curtailing the incentives to invest in diesel (if tax rates were different for diesel and gas). I feel that this is certainly a viable option, however, I feel that this will not help to solve the underlying problems. On page 5, the author describes Costa Rica's situation in detail. Specifically, he mentions that the GMA area has a particularly poorly planned and maintained road network, pointing out that the rush hour average speed is less than 5 miles per hour in that area. He goes on to mention that a survey showed that a portion of car commuters would be willing to pay half of the national average hourly wage for travel time reductions. This shows that the Costa Rica's infrastructure is inadequate to meet the needs of the growing economy. A wise course of action might include a portion of the revenue of the tax to go towards the maintenance and expansion of the roads, especially in areas where there is such a high public and private cost for commuting.
As the vehicle fleet is growing so rapidly in developing countries, pollution is obviously going to become an issue. The question then becomes, should we spur on development which raises incomes and presumably allows more people to own cars at the cost of the environment, or should we reign this in in order to decrease the negative externalities of increased vehicle ownership which also include traffic and accidents. Some balance must be reached where the growth is slowed to a point that is sustainable. This article shows that a tax on fuel need not cause increased income inequality if implemented correctly. I think the best course of action would be to tax both gasoline and diesel but use some of the revenue to subsidize bus transportation, in order to take some of the burden off of the country's poor.
This article’s discussion of pollution was very interesting because I feel that pollution is a major issue in developing countries that does not get the attention that it probably should because policy makers choose to focus more on issues that can improve their country’s financial status. However, the potential economic benefits to a decrease in pollution are prodigious. For instance, if a country chose to decrease pollution through implementing a higher fuel tax or any other method, health problems would likely decrease rapidly, allowing lower expenditures on health care and freeing up those funds to use in other ways. Furthermore, an increase in overall health in a country will aid largely to that nation’s human capital, as students will be better able to perform academically and employees will become more productive at work. Consequently the country would likely expect to see a large increase in GDP through decreasing pollution, despite the fact that attempts at economic improvements might be what deters policy makers from focusing on environmental issues in the first place.
The problem here is that policy makers—and voters—will want to see more immediate changes in their situations, so they will be less likely to want to wait around for the effects of pollution decrease to set in and will probably push for more immediate action to be taken. Therefore, it is critical to find a way to convince people that waiting for these more long-term policies is the best approach, and I believe the best way to do this is through education. Programs in schools, conditional cash transfer education classes, and other programs of this nature that educate families in the importance of environmental sustainability would be a great step towards creating the impact that policy makers need to see to make the right decisions about which methods to use to improve a developing country’s status.
I thought this article brings to light some very interesting and pertinent issues. I noticed that Scott brought up the point that politicians in Costa Rica had the presence of mind to differentiate between taxes on gasoline and diesel for the purpose of equalizing the distribution of the tax burden. I think Scott is correct in asking whether politicians in this country would be willing and able to do the same.
This article also does a good job of articulating the fact that environmental costs are often borne by the most disadvantaged in society. It also raises the issue that policymakers must consider both the negative externalities that affect a large portion of society (such as congestion, pollution, and accidents) and the affects that their policy decisions have on those in the lowest percentage of income.
I think it would be really interesting to compare the tax and subsidies on different types of fuels in the United States and those in a country like Costa Rica.
The idea of a fuel tax has been around for some time, but prior to this paper I hadn't been able to review any data that actually analyzed the direct and indirect effects on consumption due to an increase in fuel taxes. Like many other students I was intrigued by the authors' decision to analyze both gasoline and diesel separately. Intuitively I can understand how different gasoline users can be versus diesel users, but I never made the type of distinctions like the authors did in this article.
Ultimately the data shows that a tax on diesel can be regressive and that a tax on gasoline can be progressive. I wish the article would have went into more detail on these first order effects and the second order effects. I felt that the article highly emphasized the methods they used to obtain the data but once we finally got there I thought we could have see a more in-depth analysis.
I would be interested to see the effects of fuel taxes in combination with a cut or outright removal of the income tax. If designed properly (with perfect information), the positive externalities and the revenue from the fuel tax can be enough of a substitution for the lost revenue in the absence of an income tax. Because income taxes rarely apply to the poorest in a nation, there wouldn't be an effect there. But hopefully a growth in social welfare would be observed amongst the middle and upper classes, where workers are no longer facing disincentives to earn income. Instead, they will face stringent disincentives to do things that harm society, i.e. use large amounts of noxious-fume emitting fuels. Perhaps health problems that have plagued the lower class would be alleviated through cleaner air. This could be seen as a quasi-human capital investment in health, although in a very indirect fashion.
I think Emily touched upon the issue of corruption above. As I was reading through the paper I was also wondering, how effective it would be to try reducing pollution (without negative distribution effects) through taxing strategies in developing countries. However, I wasn't only thinking about the fact that governments might have difficulties collecting the taxes, but rather the fact that oftentimes it is the richer individuals who receive the tax revenue and let it vanish in their own pockets... Moreover, if the majority of the government represents the wealthier part of the nation (which is often the case), it is also less likely that progressive taxes will be implemented. I don't know about Costa Rica, the only country I am a bit familiar with would be China. In the case of China, the government is highly corrupt and tax revenue is regularly turned into private "income". Those government officials who receive tax revenue, for instance from fuel taxes, would then probably go to the next-available BMW distributor and buy themselves a fancy car which would burn even more fuel...
Pollution, caused mainly by transportation, in developing nations is major public health concern. From my experience this summer, I noticed first hand the extent of this problem. The street I lived on in Peru had fleets of taxis, combies, collectivos, and micros running constantly into the middle of the night. The large majority of these vehicles were old, inefficient, exhaust spewing, and semi-hazardous transportation methods. The pollution caused by them covered the city in a constant haze that painted a layer of black silt over all of the buildings and did not allow me to realize I lived in the mountains till I had lived there for three weeks. Exercising in this city was not an option because even a brisk walk hurt one's lungs. In the medical clinic I worked in, the majority of child patients suffered from asthma caused by the heavy smog that encompassed the city. Although there was some industry in the area, I would say most of the pollution came directly from transportation.
Ideally, I think a policy--such as the proposed fuel tax--that would make drivers have an incentive to invest in cleaner fuel-efficient vehicles would make major strides at improving the overall healthcare of the community. However, the catch, which the author does not acknowledge is that one of the best jobs a member in a family can have is driving taxis and buses. Anything that would increase their overhead would deplete their already meager incomes and they do not have the money to invest in a new car--especially since many of them take 10 years to pay off the least expensive ones. Although the costs saved on healthcare may outweigh the price of the tax, the citizen only sees the personal cost and not the societal cost. Their main concern is having enough food to feed their family and not paying for the welfare of society. With each taxi ride costing one dollar, it is easy to see how any increase in the incurred expenses for the driver would diminish the small profit margin to being non-existent. A tax like Blackman suggests may work well at creating an incentive in wealthier nations but in the poorest countries it will only worsen their poverty--especially for the drivers. The government will need to pay some of the cost of reducing pollution (perhaps by subsidizing more eco friendly vehicles) because the citizens have very limited means to do this themselves.
I thought the discussion of the policy implications at the conclusion of the paper was especially interesting. In terms of taxing gasoline but not diesel fuel, it does initially seem important to only institute policies that are progressive and avoid those that are regressive, so as to not increase income inequality even further. However, when the potential negative effects to this action are listed as a reduction in tax revenue and increases in negative externalities such as pollution through increased usage and purchase of vehicles that utilize diesel, it becomes important to consider whether such a policy would ultimately be beneficial to society in the end. It would be interesting in future work to estimate and compare the size and effects of the negative externalities of congestion, accidents, and pollution in response to a policy that imposes a tax hike on gasoline but not on diesel versus a tax hike on both gasoline and diesel. Would the increased marginal social cost of these negative externalities outweigh the potential increases in the marginal social benefit that would stem from a progressive fuel tax structure? Finally, I believe that the policy the authors mention at the conclusion of the paper of using the tax revenue to subsidize bus travel would be an interesting and seemingly effective solution towards alleviating the regressive effects of taxing all fuels, including diesel. It would be interesting to investigate how recycling this fuel tax revenue back into subsidizing the public transportation system would affect the welfare of the different income deciles of the population.
I thought it was interesting how authors Blackman, Osakwe, and Alpizar approached their study by considering four types of fuel expenditures. It is clear that because of the negative externalities associated with the increase in the number of vehicles as a result of an increase in population in recent years, such as air pollution and traffic accidents, there is a need for policy that can improve the welfare of people. Generally, the authors were able to show that the net effect of fuel taxes on welfare is "generally positive and substantial." However, increased fuel taxes on diesel fuel affect lower and middle class people who rely on buses for transportation. I like the idea of the policy they suggest that uses the revenue from the proposed fuel tax hikes to subsidize bus travel for those in the lower and middle socioeconomic class. Another option would be to utilize electric buses with onboard stored-electricity, such as a battery electric bus or a gyrobus that runs on rotational energy, in order to decrease the damaging health effects of diesel fuel.
To echo what most people have said, there is a clear positive correlation between economic development and pollution. Just intuitively, booming industrial sector and households upgrading to gas powered equipment typical of developing economies will cause pollution. The paper discussing the effects of the fuel tax in Costa Rica shows the general effectiveness of taxes on pollution. Although the authors also note negative externalities in congestion and accidents, the real concern is pollution. The regressive nature of the taxes is caused by the tax being pushed onto consumers, in this case in public service and industrial services. The graph on page fifteen shows the effects of the taxes on total expenditure towards fuel. The middle deciles change in expenditure towards all fuel types shows how reliant they are on public transportation and industrial services. Excluding the first, second, ninth, and tenth deciles, most household demand for fuel is price inelastic meaning these houses cut out other spending before limiting their fuel usage. This hurts the economy not only because they are spending less elsewhere, but the issue of negative externalities does not significantly improve. The question lies on what else can be done to limit these negative externalities. In the end, what policymakers face is a trade off between the speed of development and amount of negative externalities which usually results in the focus on short-term result (development) rather than long term well-being.
First i have to note that i was surprised to hear some of the findings in this paper. That costa rica is very polluted - more so than many european cities is new to me. I never noticed while living in the capital, San Jose. Clearly, pollution can be deceptive then, and i think a paper such as this is valuable in furthering the effort to shore up these consequences. I generally found the article to be persuasive of its points, but one thing remains in my mind: is it conceiveable that there are goods where it is beneficial that taxes are regressive? In Costa Rica, as i imagine it elsewhere, having a car is very important in participating in markets for example, which a surprisingly large share of costa ricans still rely on for income. Do progressive taxes and increased gasoline prices not discourage people from aquiring a car? (That is the point of the tax, i know). I merely wonder if perhaps ghe article does not capture a possible important cost of introducing taxes. The difference between gasoline and diesel is striking. While the tax here is slightly more regressive, diesel engines are also much worse for the environment - though public transportation still is superior to gasoline driven cars. But the encouragement by a lower tax on dielsel is simply, as the authors note happens in Europe, an increase in diesel cars. Subsidizing public transportation then seems a viable way of overcoming that challenge without lowering one tax relative to the other.
There were a couple of thoughts I had on this paper. It was interesting to see that a tax on diesel would be more regressive than gasoline because of the reliance of the poor on the bus and public transportation systems. It would then make sense to either subsidize busing for the poor or not tax diesel as heavily if at all. However, it would be interesting to conduct this study on rural populations both in developed and underdeveloped countries and whether there is the same breakdown between diesel and gas. I would imagine that the people who live in rural areas are not as depended on fuels in general as those in urban settings. This paper listed the percentages of the tax revenue that go to each government department, however, I would be interested to see where exactly that money goes and what each department does with the money. Initially I thought at least some of the money should go to research and development but I do not think that underdeveloped countries are the place to subsidize research and development due to the lack of resources. Thus the revenue should go more toward helping the poor directly.
This article does a good job of making you think about the gas tax and realize that it is a bit more complicated than you would think. On one hand it seems bad because it could potentially hurt the lower income groups since they rely on diesel gasoline for bus transportation, electricity, etc and since they make less money the effect of the tax may be greater for them as a percentage of their income. On the other hand the article also talks about the abundant pollution and safety problems caused by transportation in developing countries. It is difficult to decide which is the greater evil since you need a way to lessen consumption and recuperate losses the government incurs as a result of pollution and disability claims from those injured by cars but you also don't want the poor to suffer more as a result of it. The idea is proposed in the article to only tax the regular gas and not the diesel since the evidence shows that the diesel tax is regressive while the tax on regular gas is not. I think that a better idea would be to selectively tax diesel so that buses, electric companies, and other institutions that use diesel and may have an effect on the poor could get the diesel at a reduced rate. This would keep the rich from buying diesel vehicles and reducing tax revenue for the government. In the end I think the gas tax is in many ways necessary so I wouldn't eliminate it but I do think it could be improved.
Note: I couldn't get the blog to work on tuesday so I emailed you my blog post then and am posting today.
The paper “Fuel Tax Incidence in Developing Countries” posed some interesting questions concerning the costs and benefits of imposing a fuel tax in a developing country—in this case, Costa Rica. Such a tax would hopefully mitigate the negative externalities associated with increasing fuel use, such as air pollution, street congestion, and traffic accidents that result from increased vehicle use. The authors also briefly mentioned the tax revenue that could accrue from such a tax, but they didn’t specify whether the main objective of such a tax would be to curb consumption or to increase revenue.
ReplyDeleteThe fundamental question associated with such a tax would be: where does the burden of the tax fall? The fuel tax may be progressive through the direct taxation of gasoline, which fuel cars of the upper class. However, such a tax could also have regressive effects if diesel is taxed, raising public transportation costs. On the net, fuel taxes seem to be marginally regressive, but policymakers have the ability to mitigate the distributional problems, placing greater weight on the upper classes through taxing principally the direct consumption of gasoline. The authors mentioned that the lower classes could be helped furthermore by using the tax revenue accrued from the upper classes to subsidize bus travel. This policy would both help the lower classes and promote environmental sustainability.
I thought the fact that this paper examined the differences on where the tax burden would fall between gasoline and diesel was really interesting- I hadn't thought to consider them separately before. This paper essentially treats diesel, at least in its use for public transportation, as an inferior good. As incomes rise, people substitute gasoline instead, because they buy more of their own cars. I wonder how high the tax would be before significant numbers of people started buying diesel fueled cars instead? What would be an appropriate policy to discourage this, as the authors mentioned that diesel engines produce more pollution than gas- maybe an additional car tax on diesel engines, but not on buses, so as not to hurt public transportation companies?
ReplyDeleteI also wonder how the results from this paper apply to rural poor communities, who are more reliant on car transportation than their urban counterparts. Because they do not have access to public transportation, they could not substitute use of buses for cars if the gas tax were to increase. Maybe a voucher or subsidy to offset the cost increase would be appropriate? On the other hand, do they even have enough access to any form of transportation, car or otherwise, for a gas/diesel tax to affect them?
The article highlights a few main points and concerns for the developing world moving forward. As the authors point out, the developing world contributes to air pollution, and will most likely increase its proportion of pollution compared to the developed world in the future. As the authors also point out, an incentive – based way to stop this would be to tax fuel consumption. The results of the data show, however, that a tax on diesel would be regressive and increase inequality. The tax on gasoline would be progressive, reducing inequality, but would also be ineffective as the use of gasoline is much less than the use of diesel. In order to cut emissions, a tax on diesel would be required, but it would put the poor at a disadvantage from both first order and second order effects. Developing countries find themselves in an interesting position, then, moving forward, as it appears as though a choice must be made between increased equality or decreased emissions, unless countries choose a policy like what the authors suggest at the end, where the diesel tax is used to subsidize bus rides.
ReplyDeleteThe paper was a pretty interesting read with a large focus on whether or not an implementation of a fuel tax would have progressive or regressive effects. In my opinion the paper was able to show us the importance of custom tailoring tax policy. The author really liked to stress the idea of progressive/regressive for the obvious reason that the progressive tax policy will lend itself to greater behavioral changes and not unfairly subject low income persons to further pressure. Yet, I do think it would have been interesting to see the authors focus more on quantifying net welfare effects and an optimal gasoline/diesel tax.
ReplyDeleteIt seems that a large issue with raising the price of diesel gasoline is its harmful effect on the price of bus fare. I think this emphasis is important due to large amounts of positive externality loss resulting from a decrease in the use of public transportation (increased congestion, greater emissions). Earlier in the paper, the author states that only 21 percent of bus fare is related to the price of fuel. He combines this observation with the helpful suggestion of using the tax revenue to subsidize bus tickets. I believe that subsidy to bus fare or promotion of an effective rail system makes the most sense as an incentive to decrease congestion while forgoing regressive effects. Furthermore, it would have been interesting to hear the author’s comments on relative effectiveness of taxation on low mileage cars vs. increased taxes on gasoline itself.
The authors stress the severity of problems arising from increased vehicle use: air pollution, congestion, and accidents. Unique challenges face developing countries where options that could be used to curtail these negative externalities in developed countries, such as inspections programs, fuel economy standards, and technology mandates, are not feasible because of implementation and regulation difficulties. The ideal answer seems to lie in a simple flat rate fuel tax, which often generates opposition on distributional grounds because it is claimed to be regressive. Results from a regression that implemented a 10 percent price hike on fuel show that gasoline taxes are progressive while diesel taxes are regressive, suggesting that differentiating fuel taxes could be an effective way to reduce the burden on low-income citizens. Typically, only wealthier individuals own cars, and poorer households rely on bus transportation, thus explaining different tax burdens. As Kali pointed out, whether it is possible to differentiate fuel taxes without providing perverse incentives remains to be seen. An increase in gasoline taxes in Europe led to increased purchases of diesel cars, which pollute more than gasoline-fueled vehicles. Therefore all implications of a fuel tax must be examined before implementation. An important aspect may lie in revenue recycling: where are the funds earned from the tax allocated? Perhaps they should go towards developing more fuel-efficient vehicles, a reliable and efficient public transportation system, or bus subsidies in order to further the initiative’s goals of reducing negative externalities.
ReplyDeleteI think the issue that Andrew raises about the positive correlation that exists between development and pollution is an interesting and troubling one. Though the relationship between the two is easy to understand and observe, the solution is not, as the authors allude to. In the article, the authors examine fuel tax as a means of retarding the increase in pollution levels as development increases. I am not convinced that this is an effective method of achieving this goal, however. The authors say that the social welfare maximizing increase in fuel prices has yet to be determined and that it is “safe to assume that a 10 percent price hike would still fall short”(13). This leads me to believe that the concern that they raise about the potential for fuel taxes increasing inequality is a valid and likely outcome. In reading this article, I had a difficult time pinpointing exactly socially beneficial outcomes, if any, would result from the proposed implementation of a fuel tax. It seems to me that the nearly negligible positives would be far outweighed by the increased inequality and the negative externalities that would result. Thus, though I think they are addressing a very pertinent issue, I believe there is still considerable progress to be made towards finding a viable solution to the issue of increased vehicular air pollution in developing countries.
ReplyDeleteBlackman et al. look into the effect of a fuel tax on the Costa Rican economy in this essay. They assert that fuel taxes are needed to improve the environment (air pollution) and alleviate some of the congestion and other traffic issues that plague Costa Rica. The problem is that fuel taxes, in general, seem to be regressive, especially to the more poor deciles in the community. They set out to prove that what is needed is a differentiation between gasoline and diesel taxes to combat this problem, as gasoline taxes do not seem to be regressive. Blackman et al. reveal that a tax on diesel would be particularly hard on the poor, as they rely heavily on the bus system for transportation. Therefore, a tax on gasoline would be a better option. Now, there must also be an incentive to ensure that consumers and businesses will not overuse diesel (as it would be much cheaper). Blackman et al. point out that a solution to this problem could be to take revenue from gasoline taxes to subsidize bus travel.
ReplyDeleteI found a few points that Blackman et al. made interesting. They noted that policymakers have had issues with regulation, which may make any efforts to help the situation useless. I wonder how effective such a gasoline tax would be and if it would be succumb to much political backlash from the community. They also pointed out that a 10% tax increase may not be effective in improving the welfare of a society, citing the Mexico City example where they would need a 1600% tax increase!!!!
The primary appeal of this study is that it actually measures behavioral changes due to a tax hike. It brings numbers and reality to energy policy by measuring the price elasticity of the demand for both diesel and gasoline. However, the most interesting part of this issue is barely mentioned in the article (as Elizabeth pointed out), and that is the net gain or loss in social welfare due to this tax.
ReplyDeleteIn order to avoid welfare loss from such a tax, the fuel tax revenue would have to be reallocated in order to raise welfare in another way. The study briefly mentioned using the revenue to lower income taxes, which is in accordance with the principle from Econ 255 of taxing "bads" (such as emissions or traffic) and not "goods" (like income). If done correctly, this would lead to no net change in government revenue and little change in a consumer's discretionary income. Social welfare would increase due to the social benefits of the fuel tax effect(a decrease in traffic congestion and air pollution). If energy policy is not comprehensive in its implementation, then it can be regressive and lead to net welfare loss. For this reason, the reallocation of tax revenue is the most important part of an energy tax.
This article raises an essential problem that plagues many developing countries: pollution. The consumption of gas and proliferation of vehicular usage in developing countries raise many environmental and health concerns. About 10 years ago, when I landed in Delhi, I would cough a lot because of the soot and unclean air. As public transportation increased, the government switched to natural gas which has cleaned up the air substantially. Especially in Southern India, such as Andhra Pradesh, the state government charges 33% tax on petrol and 22% tax on diesel.
ReplyDeleteThis article makes a distinction between gasoline and diesel prices, which I had never thought of before. Diesel affects those in the lower socioeconomic brackets more because of public bus transportation. It seems to make sense, policy-wise, that in India, diesel taxes are less than petrol taxes. Studies that determine the amount of usage of diesel versus gasoline will give better insight on how to differentiate these policies.
The first thing that I was struck by in the article was the author’s ability to differentiate the affects of a fuel tax between regular fuel and diesel fuel. While this distinction is critical for assessing the progressive or regressive nature of a fuel tax, it seems like the kind of detail that may go unnoticed when policies are crafted from economic data, leading to unexpected and undesirable consequences. I was also impressed that the Costa Rican government not only took account of this difference but crafted legislation that would partially negate the regressive nature of a fuel by taxing gasoline at a higher rate than diesel. Maybe I’m just cynical, but I doubt such careful and thoughtful policymaking would have occurred in the U.S. Additionally, I do think the author’s recommendations of more subsidies for public transport (in the form of buses, in this case) could help society at large, since doing so could cut commute times and decrease the cost of commuting, allowing those who use mass transit to spend more of their money on items of their personal preference. I also think that investment in technology for mass transport (maybe by imitating clean-burning diesel technology or adopting hybrid bus engines from developed economies) could help negate some of the first order consequences of widespread bus usage (emissions of greenhouse gases, higher prices being paid for diesel etc).
ReplyDeleteI was also left wondering if a switch en-masse to diesel cars would be such an awful thing for the Costa Rica economy. Diesel engines usually get mileage per gallon than regular gasoline engines and, as clean diesel technology makes its way downstream from premium-priced cars (Volkswagen’s TDI engines are one example: info at http://tdi.vw.com/clean-diesel-vehicles/ and http://www.greencar.com/articles/new-2010-vw-golf-offers-tdi-clean-diesel-option.php), the technology will become more widely available and more affordable. While this might mean more cars on the road, those cars would each at least be adding fewer tons of emissions to the atmosphere.
I also wanted to pose one last question to end this really here-there-and-everywhere post. Costa Rica has a relatively well established mass transport industry consisting of the “quasi-public…bus transportation” systems, which allows its poorer classes (or those not wanting to drive themselves to commute to work via mass transit (16). What would the affect of a fuel tax be if no such systems existed and the commuting classes’ only options were to drive (or carpool) or provide their own method of transport (walk, bike etc)? Would that scenario change the progressive or regressive nature of the fuel tax?
--Scott
The negative consequences of pollution and accidents are obviously attributed to the development and growth of use of both diesel and gasoline burning vehicles. While there is a hope of instituting a fuel tax to help improve the problems that Costa Rica faces, it is hard to find a solution that would not hinder growth to greater equality in society. While a fuel tax on regular gasoline seems like a viable option since most wealthy citizens have gasoline burning cars, it is important that they keep it at a reasonable level in order not to push it too far and have everyone buying diesel cars and therefore burning more harmful diesel fuel. This has been happening recently in Europe with the increasing prices of gasoline. However, keeping the tax at a lower level is also a problem as well because a large tax would be needed to improve the welfare of society overall. This is a complex issue and the end of the article presents the fact that "distributional, political, fiscal, and environmental goals" must be balanced in order to effectively institute a tax to help boost the welfare of society. Finally, I believe that Costa Rica's government needs to weigh the opportunity cost of not placing a tax on fuel with regard to the long term detrimental effects that the growing level of pollution will have on society.
ReplyDeleteThis article brings the issue of pollution to the forefront, a problem that can often be overlooked when addressing ways to help bring developing countries out of the poverty trap. However, as noted in the article, this should not be overlooked due to the negative externalities associated with pollution.
ReplyDeleteMy biggest questions arise from the fact that the implementation of fuel taxes heavily relies on policymakers, in other words, the government. Now, this study looks at Costa Rica, which is classified by the World Bank as a "upper middle income country." As such, I wonder how effective this feul tax would be in middle income countries, let alone lower middle income countries. Governments tend to be more corrupt and ineffective in poorer developing nations, and could have a harder time not only imposing taxes but collecting the revenue. It would be interesting to see further studies look into ways to cut pollution that don't require as much government involvement.
As Kali, Kyle, and Katie have discussed earlier, It appears that there are several ways for the government to turn a regressive fuel tax into a redistribution of wealth as well as a method to reduce the primary sources of air pollution in Costa Rica. Going back to an important point that gomrmaner11 made, the authors left it fairly vague as to what this tax is designed to do. If it is designed to create revenue for the government, then the amount of funding for the programs that Kali, Kyle, and Katie proposed might be infeasible. However, if we assume that that this tax is meant to curtail demand for fuel, then we can assume that at least a sizable portion of the revenue can be fed back into the transportation system. I agree that subsidies for public transportation (diesel) will help to offset the toll that the tax will have on low-income individuals, as well as curtailing the incentives to invest in diesel (if tax rates were different for diesel and gas). I feel that this is certainly a viable option, however, I feel that this will not help to solve the underlying problems. On page 5, the author describes Costa Rica's situation in detail. Specifically, he mentions that the GMA area has a particularly poorly planned and maintained road network, pointing out that the rush hour average speed is less than 5 miles per hour in that area. He goes on to mention that a survey showed that a portion of car commuters would be willing to pay half of the national average hourly wage for travel time reductions. This shows that the Costa Rica's infrastructure is inadequate to meet the needs of the growing economy. A wise course of action might include a portion of the revenue of the tax to go towards the maintenance and expansion of the roads, especially in areas where there is such a high public and private cost for commuting.
ReplyDeleteAs the vehicle fleet is growing so rapidly in developing countries, pollution is obviously going to become an issue. The question then becomes, should we spur on development which raises incomes and presumably allows more people to own cars at the cost of the environment, or should we reign this in in order to decrease the negative externalities of increased vehicle ownership which also include traffic and accidents. Some balance must be reached where the growth is slowed to a point that is sustainable. This article shows that a tax on fuel need not cause increased income inequality if implemented correctly. I think the best course of action would be to tax both gasoline and diesel but use some of the revenue to subsidize bus transportation, in order to take some of the burden off of the country's poor.
ReplyDeleteThis article’s discussion of pollution was very interesting because I feel that pollution is a major issue in developing countries that does not get the attention that it probably should because policy makers choose to focus more on issues that can improve their country’s financial status. However, the potential economic benefits to a decrease in pollution are prodigious. For instance, if a country chose to decrease pollution through implementing a higher fuel tax or any other method, health problems would likely decrease rapidly, allowing lower expenditures on health care and freeing up those funds to use in other ways. Furthermore, an increase in overall health in a country will aid largely to that nation’s human capital, as students will be better able to perform academically and employees will become more productive at work. Consequently the country would likely expect to see a large increase in GDP through decreasing pollution, despite the fact that attempts at economic improvements might be what deters policy makers from focusing on environmental issues in the first place.
ReplyDeleteThe problem here is that policy makers—and voters—will want to see more immediate changes in their situations, so they will be less likely to want to wait around for the effects of pollution decrease to set in and will probably push for more immediate action to be taken. Therefore, it is critical to find a way to convince people that waiting for these more long-term policies is the best approach, and I believe the best way to do this is through education. Programs in schools, conditional cash transfer education classes, and other programs of this nature that educate families in the importance of environmental sustainability would be a great step towards creating the impact that policy makers need to see to make the right decisions about which methods to use to improve a developing country’s status.
I thought this article brings to light some very interesting and pertinent issues. I noticed that Scott brought up the point that politicians in Costa Rica had the presence of mind to differentiate between taxes on gasoline and diesel for the purpose of equalizing the distribution of the tax burden. I think Scott is correct in asking whether politicians in this country would be willing and able to do the same.
ReplyDeleteThis article also does a good job of articulating the fact that environmental costs are often borne by the most disadvantaged in society. It also raises the issue that policymakers must consider both the negative externalities that affect a large portion of society (such as congestion, pollution, and accidents) and the affects that their policy decisions have on those in the lowest percentage of income.
I think it would be really interesting to compare the tax and subsidies on different types of fuels in the United States and those in a country like Costa Rica.
The idea of a fuel tax has been around for some time, but prior to this paper I hadn't been able to review any data that actually analyzed the direct and indirect effects on consumption due to an increase in fuel taxes. Like many other students I was intrigued by the authors' decision to analyze both gasoline and diesel separately. Intuitively I can understand how different gasoline users can be versus diesel users, but I never made the type of distinctions like the authors did in this article.
ReplyDeleteUltimately the data shows that a tax on diesel can be regressive and that a tax on gasoline can be progressive. I wish the article would have went into more detail on these first order effects and the second order effects. I felt that the article highly emphasized the methods they used to obtain the data but once we finally got there I thought we could have see a more in-depth analysis.
I would be interested to see the effects of fuel taxes in combination with a cut or outright removal of the income tax. If designed properly (with perfect information), the positive externalities and the revenue from the fuel tax can be enough of a substitution for the lost revenue in the absence of an income tax. Because income taxes rarely apply to the poorest in a nation, there wouldn't be an effect there. But hopefully a growth in social welfare would be observed amongst the middle and upper classes, where workers are no longer facing disincentives to earn income. Instead, they will face stringent disincentives to do things that harm society, i.e. use large amounts of noxious-fume emitting fuels. Perhaps health problems that have plagued the lower class would be alleviated through cleaner air. This could be seen as a quasi-human capital investment in health, although in a very indirect fashion.
ReplyDeleteI think Emily touched upon the issue of corruption above. As I was reading through the paper I was also wondering, how effective it would be to try reducing pollution (without negative distribution effects) through taxing strategies in developing countries. However, I wasn't only thinking about the fact that governments might have difficulties collecting the taxes, but rather the fact that oftentimes it is the richer individuals who receive the tax revenue and let it vanish in their own pockets... Moreover, if the majority of the government represents the wealthier part of the nation (which is often the case), it is also less likely that progressive taxes will be implemented. I don't know about Costa Rica, the only country I am a bit familiar with would be China. In the case of China, the government is highly corrupt and tax revenue is regularly turned into private "income". Those government officials who receive tax revenue, for instance from fuel taxes, would then probably go to the next-available BMW distributor and buy themselves a fancy car which would burn even more fuel...
ReplyDeletePollution, caused mainly by transportation, in developing nations is major public health concern. From my experience this summer, I noticed first hand the extent of this problem. The street I lived on in Peru had fleets of taxis, combies, collectivos, and micros running constantly into the middle of the night. The large majority of these vehicles were old, inefficient, exhaust spewing, and semi-hazardous transportation methods. The pollution caused by them covered the city in a constant haze that painted a layer of black silt over all of the buildings and did not allow me to realize I lived in the mountains till I had lived there for three weeks. Exercising in this city was not an option because even a brisk walk hurt one's lungs. In the medical clinic I worked in, the majority of child patients suffered from asthma caused by the heavy smog that encompassed the city. Although there was some industry in the area, I would say most of the pollution came directly from transportation.
ReplyDeleteIdeally, I think a policy--such as the proposed fuel tax--that would make drivers have an incentive to invest in cleaner fuel-efficient vehicles would make major strides at improving the overall healthcare of the community. However, the catch, which the author does not acknowledge is that one of the best jobs a member in a family can have is driving taxis and buses. Anything that would increase their overhead would deplete their already meager incomes and they do not have the money to invest in a new car--especially since many of them take 10 years to pay off the least expensive ones. Although the costs saved on healthcare may outweigh the price of the tax, the citizen only sees the personal cost and not the societal cost. Their main concern is having enough food to feed their family and not paying for the welfare of society. With each taxi ride costing one dollar, it is easy to see how any increase in the incurred expenses for the driver would diminish the small profit margin to being non-existent. A tax like Blackman suggests may work well at creating an incentive in wealthier nations but in the poorest countries it will only worsen their poverty--especially for the drivers. The government will need to pay some of the cost of reducing pollution (perhaps by subsidizing more eco friendly vehicles) because the citizens have very limited means to do this themselves.
I thought the discussion of the policy implications at the conclusion of the paper was especially interesting. In terms of taxing gasoline but not diesel fuel, it does initially seem important to only institute policies that are progressive and avoid those that are regressive, so as to not increase income inequality even further. However, when the potential negative effects to this action are listed as a reduction in tax revenue and increases in negative externalities such as pollution through increased usage and purchase of vehicles that utilize diesel, it becomes important to consider whether such a policy would ultimately be beneficial to society in the end. It would be interesting in future work to estimate and compare the size and effects of the negative externalities of congestion, accidents, and pollution in response to a policy that imposes a tax hike on gasoline but not on diesel versus a tax hike on both gasoline and diesel. Would the increased marginal social cost of these negative externalities outweigh the potential increases in the marginal social benefit that would stem from a progressive fuel tax structure? Finally, I believe that the policy the authors mention at the conclusion of the paper of using the tax revenue to subsidize bus travel would be an interesting and seemingly effective solution towards alleviating the regressive effects of taxing all fuels, including diesel. It would be interesting to investigate how recycling this fuel tax revenue back into subsidizing the public transportation system would affect the welfare of the different income deciles of the population.
ReplyDeleteI thought it was interesting how authors Blackman, Osakwe, and Alpizar approached their study by considering four types of fuel expenditures. It is clear that because of the negative externalities associated with the increase in the number of vehicles as a result of an increase in population in recent years, such as air pollution and traffic accidents, there is a need for policy that can improve the welfare of people. Generally, the authors were able to show that the net effect of fuel taxes on welfare is "generally positive and substantial." However, increased fuel taxes on diesel fuel affect lower and middle class people who rely on buses for transportation. I like the idea of the policy they suggest that uses the revenue from the proposed fuel tax hikes to subsidize bus travel for those in the lower and middle socioeconomic class. Another option would be to utilize electric buses with onboard stored-electricity, such as a battery electric bus or a gyrobus that runs on rotational energy, in order to decrease the damaging health effects of diesel fuel.
ReplyDeleteTo echo what most people have said, there is a clear positive correlation between economic development and pollution. Just intuitively, booming industrial sector and households upgrading to gas powered equipment typical of developing economies will cause pollution. The paper discussing the effects of the fuel tax in Costa Rica shows the general effectiveness of taxes on pollution. Although the authors also note negative externalities in congestion and accidents, the real concern is pollution. The regressive nature of the taxes is caused by the tax being pushed onto consumers, in this case in public service and industrial services. The graph on page fifteen shows the effects of the taxes on total expenditure towards fuel. The middle deciles change in expenditure towards all fuel types shows how reliant they are on public transportation and industrial services. Excluding the first, second, ninth, and tenth deciles, most household demand for fuel is price inelastic meaning these houses cut out other spending before limiting their fuel usage. This hurts the economy not only because they are spending less elsewhere, but the issue of negative externalities does not significantly improve. The question lies on what else can be done to limit these negative externalities. In the end, what policymakers face is a trade off between the speed of development and amount of negative externalities which usually results in the focus on short-term result (development) rather than long term well-being.
ReplyDeleteFirst i have to note that i was surprised to hear some of the findings in this paper. That costa rica is very polluted - more so than many european cities is new to me. I never noticed while living in the capital, San Jose. Clearly, pollution can be deceptive then, and i think a paper such as this is valuable in furthering the effort to shore up these consequences.
ReplyDeleteI generally found the article to be persuasive of its points, but one thing remains in my mind: is it conceiveable that there are goods where it is beneficial that taxes are regressive? In Costa Rica, as i imagine it elsewhere, having a car is very important in participating in markets for example, which a surprisingly large share of costa ricans still rely on for income. Do progressive taxes and increased gasoline prices not discourage people from aquiring a car? (That is the point of the tax, i know). I merely wonder if perhaps ghe article does not capture a possible important cost of introducing taxes.
The difference between gasoline and diesel is striking. While the tax here is slightly more regressive, diesel engines are also much worse for the environment - though public transportation still is superior to gasoline driven cars. But the encouragement by a lower tax on dielsel is simply, as the authors note happens in Europe, an increase in diesel cars. Subsidizing public transportation then seems a viable way of overcoming that challenge without lowering one tax relative to the other.
There were a couple of thoughts I had on this paper. It was interesting to see that a tax on diesel would be more regressive than gasoline because of the reliance of the poor on the bus and public transportation systems. It would then make sense to either subsidize busing for the poor or not tax diesel as heavily if at all. However, it would be interesting to conduct this study on rural populations both in developed and underdeveloped countries and whether there is the same breakdown between diesel and gas. I would imagine that the people who live in rural areas are not as depended on fuels in general as those in urban settings.
ReplyDeleteThis paper listed the percentages of the tax revenue that go to each government department, however, I would be interested to see where exactly that money goes and what each department does with the money. Initially I thought at least some of the money should go to research and development but I do not think that underdeveloped countries are the place to subsidize research and development due to the lack of resources. Thus the revenue should go more toward helping the poor directly.
This article does a good job of making you think about the gas tax and realize that it is a bit more complicated than you would think. On one hand it seems bad because it could potentially hurt the lower income groups since they rely on diesel gasoline for bus transportation, electricity, etc and since they make less money the effect of the tax may be greater for them as a percentage of their income. On the other hand the article also talks about the abundant pollution and safety problems caused by transportation in developing countries. It is difficult to decide which is the greater evil since you need a way to lessen consumption and recuperate losses the government incurs as a result of pollution and disability claims from those injured by cars but you also don't want the poor to suffer more as a result of it. The idea is proposed in the article to only tax the regular gas and not the diesel since the evidence shows that the diesel tax is regressive while the tax on regular gas is not. I think that a better idea would be to selectively tax diesel so that buses, electric companies, and other institutions that use diesel and may have an effect on the poor could get the diesel at a reduced rate. This would keep the rich from buying diesel vehicles and reducing tax revenue for the government. In the end I think the gas tax is in many ways necessary so I wouldn't eliminate it but I do think it could be improved.
ReplyDeleteNote: I couldn't get the blog to work on tuesday so I emailed you my blog post then and am posting today.