Effects of the Tax on Retail Sales of Some Fuels on a Regional Economy: a CGE Approach

Abstract

This study simulates the effects on the economy of Extremadura that are produced by a new tax on retail sales of some fuels. A computable general equilibrium model involving various labour market scenarios is employed as a modelling framework. Model parameters are obtained by calibration, using a social accounting matrix for Extremadura updated to the year 2000. Further, we also include an additional simulation in which a hypothetical regional tax rate, to finance environmental policies, is considered. This second simulation assumes constant fiscal revenues. The results of the first simulation show that the effects of this tax are modest. The simulation shows household welfare losses, decreasing activity levels and generalised price reductions, except in production sectors more directly linked to the oil products sector. In addition, we also observe that this hypothetical additional regional fuel tax rate would reinforce the effects produced by the national tax rate.