Publication: Who Bears the Burden of Fuel Taxation in Latin America and the Caribbean Countries?
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2025-08-15
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2025-08-15
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This study explores the short-term welfare and distributive effects of selected fuel tax and subsidy reforms in six countries in the Latin America and Caribbean (LAC) region that are aimed at promoting the transformation of energy systems and have the potential to generate much-needed fiscal revenue. The analysis focuses on the immediate effects of higher fuel taxes (and lower subsidies) on household purchasing power in a partial equilibrium exercise. The exercise applies tools for the analysis of fiscal incidence (following the Commitment to Equity [CEQ] methodology; refer to Lustig 2022a, 2022b) that have been developed to account for the direct and indirect price effects of fuel taxes and subsidies in Brazil, Jamaica, Mexico, Paraguay, Peru, and Uruguay. The methodology consists in comparing household per capita income before and after fuel taxes and assuming that households have not yet adjusted their consumption choices. It relies on detailed household income and expenditure survey data and input-output tables for the quantification of the indirect price effects. The analysis explores the impact of taxes on various types of fossil fuels, namely, gasoline, diesel, liquefied petroleum gas (LPG), natural gas, kerosene, and ethanol. Alternative fuel tax policies are evaluated against a baseline scenario reflecting a country’s tax structure in a baseline year. In addition, the study examines how a compensation mechanism based on existing social protection programs can help partially offset these effects in each country.
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“World Bank. 2025. Who Bears the Burden of Fuel Taxation in Latin America and the Caribbean Countries?. © World Bank. http://hdl.handle.net/10986/43592 License: CC BY-NC 3.0 IGO.”
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