Fuel Tax Incidence in Developing Countries: The Case of Costa Rica

Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries—all of which are typically major problems—they are often opposed on distributional grounds.

Yet few studies have investigated fuel tax incidence in a developing country context. The authors use household survey data and income-outcome coefficients to analyze fuel tax incidence in Costa Rica, concluding that distributional concerns need not rule out using fuel taxes to address pressing public health and safety problems, particularly if gasoline and diesel taxes can be differentiated.