#08-05:

Fuel taxes have returned to centre stage as a potential policy instrument for greenhouse gas abatement. However critics have complained that a fuel tax is regressive. Such claims are based on few studies conducted in developed countries. This paper tests the validity of this claim for India. It uses data from a representative household survey covering more than 124 thousand Indian households. The study finds that a fuel tax is progressive. Using an input-output approach, this paper tries to study the distributional effect, once price change in non fuel goods (arising out of fuel tax) is considered. The progressivity result holds good even when one considers indirect consumption of fuel through its use as an intermediate input.