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A. Annex: Variables Definitions and Sources
B. Annex: Panel Unit Root Tests for Gasoline, Kerosene and Diesel Prices
C. Annex: Panel Unit Root Tests for International Relative Prices
We would like to thank Peter Allum, David Coady, Luc Eyraud, Sean Nolan and participants of the IMF’s African Department External Sector Network seminar series for useful comments. We are also grateful to our desk economist colleagues in the IMF’s African department who shared their data and country specific information with us. All the remaining errors are ours.
On March 12, 2010 the Ghana News Agency reported that: “A joint police task force and the Kpassa Community Watch Committee on Thursday impounded two unlicensed motor bikes and quantities of fuel in jerry cans abandoned by fuel smugglers after a hot chase. Mr Douglas Kumah, Nkwanta District Police Commander who briefed the GNA, said members of the Watch Committee sought the assistance of the police to clamp down on a smuggling gang along the Ghana-Togo frontier near Kpassa in the Volta Region. He said in one of their operations, the team encountered four unlicensed motor bikes carrying 30 litters each of fuel bound for Sarakawa in neighboring Togo. He said in the ensuing chase, two of the riders abandoned their bikes and fled into the forest while two others escaped with the fuel they were carrying.”
For example, the fiscal cost in Togo for 2007-08 was between 0.7-2.0 percent of GDP.
This issue may merit further investigation. Addressing concerns over price volatility can inform mitigating policy measures, such as automatic smoothing mechanisms that balance volatility and fiscal risks.
Net fiscal revenues derived from the price structure for petroleum products typically include ad valorem taxes such custom duties and VAT, other specific taxes (excise for example), and direct subsidies. In many cases, these different components of net taxes are modified such that increases in international prices are not fully passed through to consumers. Typically, changes in excises are one key instrument to smooth domestic fuel prices. For example, Niger increased subsidies and decreased excise taxes to mitigate the increase in price of imported gasoline between 2005 and 2008.
Data from the International Energy Agency (IEA) includes consumption of petroleum products by households and enterprises. 2008 is the latest year for which information was available for a large set of countries considered here. Consumption in 2009 and 2010 was inferred using real GDP growth rates for individual countries.
In this case, the estimates imply that taxation is actually above benchmark levels.
A different issue arises when the administered price is set at a rate that does not cover import costs plus taxes. Profits from importing are eliminated, and shortages are likely to emerge. The losses generated in this way are usually absorbed by the government’s budget.
Except for the response of prices in Burkina Faso to prices in Ghana and the response of prices in the Côte d’Ivoire to Prices in Mali, which are not statistically significant.
Note that since the response of prices in the Côte d’Ivoire to prices in Mali is not statistically significant, the half-life actually reflects an adjustment towards the long-run link between Ivoirian prices and international ones (which are always included in the models).