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The long-run macroeconomic impacts of fuel subsidies in an oil-importing developing country

Plante, Michael (2011): The long-run macroeconomic impacts of fuel subsidies in an oil-importing developing country.

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Abstract

Analytical and numerical results show how the presence of a subsidy on household and firm purchases of oil products distorts long-run macroeconomic aggregates in an oil-importing developing country. Beyond leading to over-consumption of oil products these subsidies also lead to increased labor supply, a distorted emphasis on producing traded goods, and higher real wages. The subsidy also impacts the relative price of non-traded goods, causing it to fall when the non-traded sector is more oil-intensive than the traded sector and vice-versa.

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