Fuel tourism in border regions

Abstract

The gasoline price differential existing across the border between Switzerland and its neighbouring countries (gasoline price in Switzerland is generally lower than in the neighbouring countries) has encouraged the phenomenon of fuel tourism to develop. People living in the bordering regions of Italy, France and Germany have had an incentive to buy gasoline in Switzerland for several years. This phenomenon increased employment and fiscal revenues from fuel taxes in Switzerland, whereas in the neighbouring countries we observed lower fiscal revenues and a decrease of employment in the gasoline distribution sector. These repercussions on the government revenues have induced the North-Italian province of Lombardy to adopt measures against fuel tourism (in Italy, similar measures have already been adopted in the regions neighbouring Slovenia). For instance, the inhabitants in the regions near the border can take advantage of price rebates at the fuel stations. The reaction to the price decreases was very important: Six months after the introduction of the rebates at the Italian fuel stations, the fuel demand in the Swiss border regions decreased by 20 to 40%. On the other hand, fuel stations in Italy have realised important increases in selling. The case of fuel tourism gives a good economic example for price responsiveness. The extent to which fuel tourism can be a problem for the border region depends on the sensitivity of car owners to fuel price differentials and on the intensity of cross-bordering movements (density of population). In this paper we analyse the impact of country-specific fiscal policies on gasoline demand using aggregate data at a regional level for three Swiss border regions over the period 1986 to 1997. The data include fuel selling of three main gasoline companies in an area of 10 km from the border. For the area further away form the border, data for a sample of fuel stations are available. A log-log stochastic equation for gasoline consumption was estimated, using fuel price differences as well as regional income and other regional variables (for instance car density, commuters, number of border offices, prices of cigarettes) as independent variables. Initial estimation results show a very significant impact of price differentials on fuel demand and an important share of fuel tourism on the overall gasoline sales of Swiss border regions. It can be shown that gasoline consumption by consumers in bordering regions is very sensitive to price differentials of standardized goods like gasoline (that is goods, which do not differ from one country to the other). From an energy policy point of view this result implies that, as long as price differentials persist, there is little room in border regions for discouraging residential gasoline consumption using tax increases. Policy measures like those introduced in Italy and in other countries, in order to minimize the negative side-effects of a neighbour with low fuel taxes, seem to be successful in avoiding a loss of taxes as well as losses for owners of gas stations in the border region with higher taxes. Of course, for Switzerland this could imply a restructuring of the fuel-selling sector in border regions.