CIRED seminar: Quentin Perrier (HCC)

Abstract

Current fuel taxation in France presents a blind spot, since it does not take account of the oil price. This article explores the benefits of a tax rate ‘elastic’ to the price of a barrel of oil: if international prices soar, the tax rate could be lowered, and vice versa. Such a mechanism has generated little literature, even though it could be of interest given the fractal nature of oil prices over the two last decades. We analyse the implications of this mechanism, firstly from a theoretical point of view, and then through a retrospective quantification of the effects, if it had been introduced in France from 2010. We conclude that an elastic tax efficiently lowers price peaks at the pump and the resulting threats of social stability, with a limited (and even positive) impact on public finances. This leads to consider that the Yellow Vests movement would have been more limited with such a mechanism, as well as the costly measures put in place in reaction to the war in Ukraine. We believe that this principle of elasticity in fuel taxation could merit attention well beyond France and among all other importing countries.