The pass-through of subsidizing petrol consumption: the case of Spain

Abstract

In response to the rise in petrol prices following the invasion of Ukraine on 24 February 2022, the Spanish government introduced a fuel subsidy of €0.2 per litre from April to December 2022. Using weekly petrol price data, we estimate a difference-in-differences model, with European Union countries that did not introduce measures as the control group, to determine the potential price effects of both the subsidy and its impact after its removal. The causal analysis leads to several conclusions. First, the subsidy increased the net price of diesel by €0.0527 per litre. Petrol 95 does not appear to have changed significantly with the introduction of the subsidy. Secondly, diesel prices return to their pre-subsidy equilibrium when the subsidy is removed, so there does not seem to be any asymmetry in the pass-through. Finally, the pass-through was 73.65% for diesel and we cannot reject 100% in the case of petrol 95. Estimates confirm that at least 857 million euros of public funds were retained by the petrol companies, i.e. 23.8% of the total subsidy cost for diesel.