Fiercer competition for greater savings: Policy mix, competition, and spatial analysis of fuel tax reduction effects

Abstract

Rapid fluctuations in oil prices compel governments to implement various policies. Particularly, when oil prices experience sharp increases and decreases due to uncontrollable external factors, a primary policy tool chosen by governments to stabilize fuel prices for consumers is fuel tax cuts. This study examines the impact of fuel tax cuts on fuel prices during significant oil price surges, focusing on the role of governance structures among gas stations and the competitive dynamics of pricing strategies. Specifically, it is observed that publicly operated gas stations more promptly reflect tax cuts in retail prices, and private gas stations located near these public stations maintain lower prices compared to those that are not adjacent. These findings highlight the importance of competitive market conditions in the administration of tax policies and confirm that achieving policy objectives requires not only tax policy adjustments but also the establishment of competitive market structures from a policy standpoint.