Cheap gas makes people use too much of it — that’s the takeaway from a study in this month’s American Economic Review . In “The Economic Cost of Global Fuel Subsidies,” Lucas Davis, a associate professor at Berkeley’s Haas Business School , uses World Bank data to show that countries with consumer fuel subsides have higher fuel consumption. Crude and refined oil are traded internationally, so their wholesale prices are similar everywhere. What causes such a great variation in price — from $0.08 a gallon in Venezuela to $9.61 in Turkey — are taxes and subsidies. Mr. Davis determined countries’ subsidies by calculating the difference between domestic consumer prices and international spot prices, and factoring in distribution, transport and retail costs. Basically, if what people pay at the pump is less than the cost of the fuel and its related costs, he considers the fuel subsidized. Without […]