Centre for the Study of African Economies Conference 2011 on Economic Development in Africa was held at St Catherine's College, Oxford, 20-22 March 2011. Junior research fellow of EfD Ethiopia, Rahel Derbie, presented a paper on Fossil Fuel and Food Tax Incidence in Ethiopia.
The paper entitled Fossil Fuel and Food Tax Incidence in Ethiopia considered fossil fuel and food tax incidence in different expenditure groups of households. Tax burdens from private fuel consumption, public fuel consumption, kerosene and butane gas, total transport and total fossil fuel consumption and from food items were considered. Most studies suggest that environmental taxes are regressive, making them less attractive policy options.
The result of this study suggested otherwise; that is fossil fuel taxes in Ethiopia are not regressive rather they are progressive even if the progressively varies across items considered. However, when kerosene and butane gas in rural and urban areas are considered separately, fuel tax burden in urban areas was found to be regressive unlike other fuel types.
On the other hand, the budget shares for food exhibit the opposite pattern. Generally, food tax burden in Ethiopia both in rural as well as in urban areas is regressive. Tax burden from public transport fuel use falls more heavily on the rich than the poor, the effect being even higher for private fuel consumption. However, in the case of kerosene, butane gas and food, the tax burden on the poor is higher than on the rich. If the policy makers want to make sure that fuel and food tax do not hurt the poor then an increase in fuel tax could be complemented with the equivalent of a tax relief or subsidy for kerosene, butane gas and food items (especially for the poor). In addition to the distributional effects, this would help address local and global environmental problems.