IMF Working Papers

Greenflation or Greensulation? The Case of Fuel Excise Taxes and Oil Price Pass-through

By JaeBin Ahn

July 12, 2024

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Format: Chicago

JaeBin Ahn. Greenflation or Greensulation? The Case of Fuel Excise Taxes and Oil Price Pass-through, (USA: International Monetary Fund, 2024) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Can a carbon tax reduce inflation volatility? Focusing on fuel excise taxes, this paper provides systematic evidence on their role as a shock absorber that helps mitigating the impact of global oil price shocks on domestic inflation. Exploiting substantial variation in fuel tax rates across 28 OECD countries over the period from 2014 to 2021, a simple idea that a per-unit, specific tax takes up a portion of the product price immune to cost shocks goes a long way toward explaining heterogeneity in the degree of oil price pass-through into domestic inflation across countries. A back-of-the-envelope calculation from the estimation results supports its quantitative significance---differences in fuel tax rates could explain about 30% of the variation in annual headline CPI inflation rates observed between the U.S. and U.K. during the 2021 inflation surge.

Subject: Excises, Fuel prices, Fuel tax, Inflation, Oil prices, Prices, Taxes

Keywords: Back-of-the-envelope calculation, Diesel tax, Excises, Fuel excise tax, Fuel prices, Fuel tax, Gasoline tax, Global, Greenflation, Greensulation, Headline CPI inflation rates, Inflation, Inflation volatility, Oil price pass-through, Oil price shock, Oil prices, Retail fuel price

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2024/153

  • Stock No:

    WPIEA2024153

  • ISBN:

    9798400280993

  • ISSN:

    1018-5941

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