Increase in Excise Tax Rates on Gasoline and Diesel Fuels-a Negative Effect on the Budget and the Economy

The oil refining industry is one of the most important structures of the Russian economy. Consump-tion of oil products provides revenues to the regional and federal budgets through different types of taxes. Increases in excise tax rates carried out in Russia in recent years do not appropriately take into account the impact of this measure on the demand for oil products, thus enabling a decrease in the effectiveness of fiscal policy. Nevertheless, neither are the determinants of oil products con-sumption properly investigated, nor have science-based estimates of the corresponding elasticities of consumption been submitted in publicly available sources. This article provides a specification of the model of demand for oil products by motor vehicles. Estimation of the model is performed using a detailed monthly panel data set for the subjects of the Russian Federation over the period 2010-2016. The short-term price elasticity constitutes -1.1, while the long-term price elasticity is -2.3. Estimates of the short-and long-term elasticities with respect to income and the number of cars per capita are also found. The obtained results allow one to conclude that in Russia there is elastic demand for oil products and, under existing economic conditions, the current increase in the excise tax rates (by about 0.4 rubles per liter) may lead to a decrease in gasoline consumption in the short and long terms by 0.93% and 2% per car respectively, being neutral for the budget in the short run and negative in the long run.

Automated summary

The oil refining industry is a crucial sector of the Russian economy, but the determinants and elasticities of oil product consumption have not been thoroughly studied. This article presents a model of demand for oil products using detailed monthly data from Russian regions, and estimates the short-term and long-term elasticities.