Automatic Fuel Pricing Mechanisms with Price Smoothing: Design, Implementation, and Fiscal Implications

By David Coady, Javier Arze del Granado, Luc Eyraud, Anita Tuladhar

January 24, 2013

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David Coady, Javier Arze del Granado, Luc Eyraud, and Anita Tuladhar. Automatic Fuel Pricing Mechanisms with Price Smoothing: Design, Implementation, and Fiscal Implications, (USA: International Monetary Fund, 2013) accessed December 21, 2024

Disclaimer: This Technical Guidance Note should not be reported as representing the views of the IMF. The views expressed in this Note are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Many developing and emerging countries do not fully pass-through increases in international fuel prices to domestic retail prices, with adverse consequences for fuel tax revenues and tax volatility. The adoption of an automatic fuel pricing mechanism can help to address this problem, and the incorporation of a price smoothing mechanism can ensure pass-through over the medium term but also avoid sharp increases (and decreases) in domestic prices. This technical note addresses the following issues: (i) the design of an automatic fuel pricing mechanism; (ii) the incorporation of domestic price smoothing and resulting tradeoffs; (iii) the transition from ad hoc pricing adjustments to an automatic mechanism; and (iv) policies to support this transition and the maintenance of an automatic mechanism. A standardized template for simulating and evaluating the implications of alternative pricing mechanisms for price and fiscal volatility is available on request.

Subject: Fuel prices, Fuel tax, Inflation, Price adjustments, Price structures, Prices, Taxes

Keywords: Fuel price, Fuel prices, Fuel tax, Fuel taxes, Increase well, Inflation, Petroleum products, Price, Price adjustments, Price band, Price change, Price series, Price smoothing, Price structure, Price structures, TNM

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Technical Notes and Manuals No. 2012/003
Stock No:

TNMEA2012003
ISBN:

9781475566949
ISSN:

2075-8669

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