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Federal Reserve Bank of Dallas
Working Papers
Fuel subsidies, the oil market and the world economy
Nathan S. Balke
Michael D. Plante
Mine K. Yucel

This paper studies the e ffects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil producing countries with fuel subsidies where retail fuel prices are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing countries. Welfare can also improve in the oil-exporting countries, depending upon the extent to which they are net exporters of oil and on oil supply and demand elasticities.

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Nathan S. Balke & Michael D. Plante & Mine K. Yucel, Fuel subsidies, the oil market and the world economy, Federal Reserve Bank of Dallas, Working Papers 1407, 01 Aug 2014.
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Note: Published as: Balke, Nathan S., Michael D. Plante and Mine K. Yucel (2015), "Fuel Subsidies, the Oil Market and the World Economy," The Energy Journal 36 (S): 99-127.
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Keywords: oil prices; fuel subsidies; fiscal policy; open economy macro
DOI: 10.24149/wp1407
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