Potential Economic and Environmental Implications of Diesel Subsidy: A Computable General Equilibrium Analysis for Turkey

Abstract

This paper is aimed at addressing three interrelated main issues: First is the role of fuel subsidies role in different parties' election campaigns in the June 7, 2015 general election in Turkey. Second is the impact of agricultural diesel subsidies on both macroeconomic indices and carbon emissions. Third is the distinction between neutrality and non-neutrality of indirect tax revenues when the diesel is subsidized.  Each issue is designed as to the policy scenario to employ multi-sectoral general equilibrium model which investigates the short-run impacts of policy scenarios.  The short run simulation results suggest that all shocks are beneficial for the entire economy due to the increase in GDP and welfare with varying degrees. All agricultural sectors gain from the expanding domestic output and exports because of low diesel prices. The scenario followed by non-neutrality of revenue greatly increases in output and consumption, and nevertheless emission level of carbon as well.  Keywords: CGE; Subsidy; Energy; Carbon Emission;JEL Classifications: C68; H71; Q43; Q54