Reforming subsidies for fossil fuel consumption: Killing several birds with one stone

Macroeconomic impacts of oil price shocks in Asian economies

“…The results obtained here are also consistent with the ones based on a DSGE model with oil subsidies (e.g. Shikha et al, 2009;McLure, 2013).…”

Global Taxes and International Taxation: Mirage and Reality

“…as hard to take away a subsidy as it is to impose a new tax. A country -indeed the world -may well lose in environmental as well as budgetary terms from subsidising fossil fuels and, as McLure (2013) shows, the benefits of such subsidies may flow mainly to those with higher incomes (and hence more ways to use cheap fuel). Nonetheless, it is always and everywhere difficult to take a fiscal benefit away from anyone without giving them something roughly equally valuable in return.…”

“…To the extent that actions have been taken they have generally followed the path of regulation rather than taxation, and this is likely to continue to be the case in the future (Baumert 1998). From a fiscal perspective, however, the most obvious way to proceed is, first, to reduce the surprising extent to which even very poor countries continue to squander scarce budgetary resources on clearly inefficient and almost always inequitable subsidies to fossil fuel consumption (McLure 2013), and, second, to focus on developing more coordinated national levies on carbon emissions, perhaps supported by soft law frameworks like those that now underlie the international tax system -frameworks that are essentially voluntarily enforced by countries acting in their own interests (Eccleston 2012). As and when countries decide to reduce carbon emissions, the economically preferable way to do so is to increase the rate of effective taxation on activities that generate negative externalities so that people face the real social costs of their choices, whether about where to invest or what to consume.…”