American Economic Review: Vol. 104 No. 5 (May 2014)


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The Economic Cost of Global Fuel Subsidies

Article Citation

Davis, Lucas W. 2014. "The Economic Cost of Global Fuel Subsidies." American Economic Review, 104(5): 581-85.

DOI: 10.1257/aer.104.5.581


By 2015, global oil consumption will reach 90 million barrels per day. In part, this high level of consumption reflects the fact that many countries provide subsidies for gasoline and diesel. This paper examines global fuel subsidies using the latest available data from the World Bank, finding that road-sector subsidies for gasoline and diesel totaled $110 billion in 2012. Pricing fuels below cost is inefficient because it leads to overconsumption. Under baseline assumptions about supply and demand elasticities, the total annual deadweight loss worldwide is $44 billion. Incorporating external costs increases the economic costs substantially.

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Online Appendix (205.32 KB) | Download Data Set (424.09 KB) | Author Disclosure Statement(s) (16.25 KB)


Davis, Lucas W. (U CA, Berkeley)

JEL Classifications

Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices
Q35: Hydrocarbon Resources
Q38: Nonrenewable Resources and Conservation: Government Policy

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