An analysis of the fuel price cut of 20 cents/litre applied in Spain since April 1, concludes that it is ineffective and has led to price increases
In recent months, and especially after the invasion of Ukraine, hydrocarbon prices have risen in Spain (and much of Europe). And this increase has a direct negative effect on any economy: inflation.
In this regard, several European countries have taken intervention measures on these markets to (manifestly and intentionally) lower the final prices paid by consumers: fixing maximum prices in Slovenia, for example; tax cuts in Ireland or Belgium, or subsidies, as in the case of Spain.
At the end of March 2022, the Spanish government announced that a temporary measure would come into force on 1 April (which it has already announced that it is willing to extend until the autumn), consisting of a reduction of 20 cents per liter on the final price of hydrocarbons. at gas stations.
But the measure brought an important nuance: the stations of companies with refining capacity in Spain (Repsol, Cepsa and BP), and which are also the ones with the largest presence in the country, have to deduct 5 cents, while the state pays the other 15 cents. other stations, the discount would be fully covered by public funds (20 cents).
We analyzed the effects of the various measures taken by European governments on the prices of diesel and 95-octane petrol in Europe. And the changes in Spain, among other things. Let’s look at this particular case.
We have worked with a data panel of the weekly average prices for Europe of petrol 95 and diesel, both before and after tax, for 19 weeks of 2022: from the first week of January to the second week of May. In addition, data has been analyzed for the average weekly price of a barrel of Brent crude, expressed in euros (after applying the exchange rate).
In order to assess the effects of government intervention on hydrocarbon prices, information is needed not only about how the variable of interest (in this case prices) has behaved in the affected group (Spain), but also about another group that was not affected. by the policy, the control group.
Fortunately for our analysis, several European countries had no policies in the period studied (Austria, Bulgaria, Denmark, Estonia, Finland, Latvia, Lithuania, Romania, Slovakia, and Sweden), leaving their average hydrocarbon prices in the control group.
Our aim was to observe how prices have behaved in Spain after the policies of the government, regarding those countries where no policies have been applied. The question is: what prices would hydrocarbons have had in Spain if the policy had not been applied?
The results of our estimates are clear: average prices in Spain rose by an average of about 5 cents. Petrol 95 rose by 2.7 euro cents before tax and 3.7 euro cents after tax. Diesel rose even more, reaching 4.1 and 6 euro cents before and after tax respectively.
As a technical matter, we would like to emphasize that Spain and the countries of the control group showed a similar behavior before the application of the policy and therefore they are comparable and the results are valid.
Several lessons can be drawn from these results. First, they show how, in a market with serious competition problems at all stages of the production chain and inelastic demand, the introduction of a subsidy allows producers to appropriate part of it.
And second, the ineffectiveness of the measure: Some of the subsidy is not reflected in lower prices for consumers, who should pay 20 cents less and not 15 cents as is happening now. In addition, with the double burden of costs to the public and environmental sectors by financing and encouraging the generation of polluting emissions.
This article is also signed by:
Jordi Perdiguero Garcia. Professor of Applied Economics, Autonomous University of Barcelona
Jose Manuel Cazorla Artiles. Colleague Professor. Department of Applied Economic Analysis, University of Las Palmas de Gran Canaria
This article was published in The conversation
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
