Different taxation between diesel and gasoline: Is it justifiable for Portugal?

We question the fiscal advantage enjoyed by diesel fuel in Portugal based on economic and environmental grounds. To do so, we estimate price and income elasticities for diesel and gasoline. Our results show that diesel consumption is inelastic to price changes in Portugal, and instead, this consumption is highly dependent on economic growth, given its strong use for commercial purposes. Consequently, higher taxes on diesel are not very effective to moderate demand and would hinder firm's competitiveness. To protect the environment other policy options should be explored, such as environmental standards and incentives to electric mobility. (C) 2022 The Author(s). Published by Elsevier Ltd.

Automated summary

This article questions the fiscal advantage of diesel fuel in Portugal based on economic and environmental reasons. The study shows that diesel consumption in Portugal is insensitive to price changes and instead heavily dependent on economic growth due to its predominant use in commercial sectors. Therefore, higher taxes on diesel may not effectively moderate demand and could hinder firms' competitiveness. To protect the environment, alternative policy options such as environmental standards and incentives for electric mobility should be explored.