12 ÓCentre for Economics and Business Research In this worked example, a $3 tax puts up the price by only $1, with $2 of the tax absorbed by the producer. In practice this 33% passthrough looks far too low as is shown by the empirical evidence below. 3.3. Empirical evidence A recent very detailed study in Finland has looked at this issue in some detail and provided some general confirmation of the theoretical position, showing that (as expected theoretically) the scale of the passthrough varies with the likely price elasticity of consumers. The results of the study showed quite wide variation in the extent of passthrough from 77% in rural areas that were more price sensitive with lower incomes and 91% in urban areas with assumed richer and less price sensitive consumers10. The total passthrough is estimated at 80%. In Australia, the earlier 25.3 cents per litre fuel duty cut was reinstated on 29 September 2022 and the impact on retail fuel prices observed by the Australian Competition and Consumer Commission. Their conclusion was that the full duty reinstatement was passed through on average, though the price of diesel rose by slightly more than the rise in duty and the price of petrol by slightly less11. The research also indicated that the earlier cut in duty had been fully passed through after the appropriate lag (about 6 weeks). The CMA report referred to above, looking at the extent to which the 5p cut in duty announced in the March 2022 Budget looks in considerable detail at the supply chain impacts. The CMA concludes that the cut in duty announced in the Budget had not been fully passed through. It focussed particularly on the increased margins in refining. It also observed that changes in both duties and crude oil prices seemed to be passed through only after a lag. 3.4. OBR assumptions The OBR (Office for Budget Responsibility) have estimated that their assumed 23% increase in duty should lead to a fuel price increase of 12p a litre. Since, if the 23% increase were passed on in full this would imply a rise of 14.6p a litre, this gives an implied passthrough of 82%. 3.5. Conclusions Since the OBR’s implied passthrough estimates seem consistent with both the CMA’s analysis and the results of other empirical research, we conclude that we are happy to use the 82% estimate. 10 The heterogeneous incidence of fuel carbon taxes: Evidence from station-level data, Jarkko Harju, Tuomas Kosonen, Marita Laukkanen and Kimmo Palanne Journal of Environmental Economics and Management Volume 112, March 2022, 102607 11 https://www.accc.gov.au/consumers/petrol-and-fuel/monitoring-fuel-prices-following-the-excise-cut-and-restoration
RkJQdWJsaXNoZXIy ODMyMDY=