Tax Incidence in the Gasoline Market in Chile (Incidencia Tributaria En El Mercado De Las Gasolinas En Chile)

Abstract

Gasoline taxes usually represent a large fraction of gasoline prices. For this reason, when prices hike public pressure increases to either reduce or eliminate the tax to provide relief to consumers, which implicitly assumes that a tax reduction would be passed on completely to consumers. However, there are few studies on tax incidence for gasoline taxes, especially for developing countries. This work contributes providing empirical evidence on gasoline tax incidence in Chile.Using data for the period 1994-2000, the results show that changes in the gasoline tax rate are passed on 100% to 93 and 97 unleaded gasolines prices in the wholesale market. In the retail market taxes are passed-through 140% to final prices, which provides evidence that consumers bear more than 100% of the tax burden and is also consistent with the existence of some degree of market power in the retail market.