Understanding the distributional impacts of increases in fuel prices on poverty and inequality in Paraguay
DOI:
https://doi.org/10.35319/lajed.202239280Keywords:
fuel prices, poverty, inequality, ParaguayAbstract
The recent global increases in fuel prices threaten the gains in poverty reduction that countries like Paraguay have achieved in the last few decades. Because of this, policy makers must understand the potential distributional impacts of increases in fuel prices to evaluate the implementation of alternative measures that could mitigate these impacts. In this paper, we analyze the potential effects of increases in fuel prices on poverty and inequality in Paraguay. Using microsimulation methods and based on the Commitment to Equity (CEQ) framework, we estimate the impact of higher fuel prices on welfare, poverty, and inequality based on three scenarios: (a) increases in gasoline prices, (b) increases in diesel prices, and (c) simultaneous increases in gasoline and diesel prices. The results obtained suggest that the total impact of increasing fuel prices tends to be more regressive in Paraguay. At the same time, the results of our simulations indicate small positive effects on income inequality.
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