An Initial Analysis of Price Effects of Subsidizing Petrol in Europe

The increase in international petroleum prices generated by Russia’s invasion of Ukraine is one of the main causes of inflation, especially in Europe. In order to contain it, 13 European countries have introduced tax reductions or subsidies so as to reduce the final diesel and gasoline 95 prices paid by consumers. However, these markets have shown both inelastic demand and concentrated markets which affect pass-through. Using weekly data for 24 European countries between January and May, 2022, this paper analyzes the effect of these measures on diesel and gasoline 95 prices. The difference-in-difference estimator shows a high degree of heterogeneity between them, although on average approximately 70 percent of the tax reductions are transferred. Therefore, these measures are: inefficient, as only a small part has an impact on the final price paid by consumers; regressive (as they subsidize the richest); do not fight climate change, and finance Russia as a petrol exporting country