[sustran] poverty alleviation, paul barter's questions

[Institute for Transportation and Development Policy]

Dear Paul, 

these are very pertinent questions about the equity implications of fuel
prices.  We had a long debate with the World Bank because they were using
their lending to push for the commercialization of public transit systems
but did little to push for the internalization of the costs of roads on car
owners.   The result of this fight was that the World Bank came out in their
new Transport Policy saying that they would push countries to increase taxes
on oil to at least cover road infrastructure costs.  

I think we need more details about what exactly is happening in India before
we can judge the equity implications. 

In countries where there is a state oil company there may be artificially
low fuel prices.  But if it is a state company, then they should be able to
raise the cost of certain fuels but not others.  If it is a tax issue, it is
very easy to make fuel taxes selective (ie. on gasoline only, but not on
kerosine).  I think in India the big debate is about deisal prices, which
are artificially low, no? 

I was disappointed in the World Bank's exclusive focus on oil taxes because
I think a better way to get auto users to internalize their costs is to
increase the costs of parking in downtowns, which represents a huge subsidy
in most countries, and which doesn't affect public transit users at all. 

Obviously the equity impacts depend on the specifics of the case.  If
kerosine prices are raised, it would have an adverse impact on the poor.  If
deisal prices are raised, it is likely that bus passengers would end up
paying more; in theory they could be insulated from increases by larger
subsidies to the bus companies, but in practice bus fares would probably go
up.  

The World Bank claims that fuel taxes are a reasonably good form of
generating revenue as the only economic distortion they lead to is the
conservation of fuel, which is a good thing.   

Increased deisal prices would also drive up trucking costs in the short run
and these might also be passed on to consumers in the form of higher food
and other products.  IN the long run, however, it might stimulate the
production of more fuel efficient trucks.  

I think as a pragmatic matter it would be wisest for groups representing
poor people to push for subtler policies such as continued subsidies to
kerosine but not gasoline and deisal, and for protecting bus passengers from
deisal increases by increased public transit subsidies.  But this is a very
dangerous game, and I understand why advocates of the poor would be opposed
to increases across the board. 

Subsidies to public transit are also attacked at the World Bank on the
grounds that the primary users of public transit are not poor (which is
true, but it ignores the fact that the poor do use public transit).  At
least in the case of public transit subsidies there is an environmental as
well as equity justification, while there is only an equity justification
for oil subsidies.

Rgds, 
walter hook, 




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