Distributional effects of transport fuel taxes in Kenya

This paper estimates distributional effects of fuel taxes in Kenya and comments on fuel tax regime for developing countries that are experiencing unprecedented vehicular growth.  The choice of transport a households has has an impact on the consumption of transport fuels and therefore pollution.

The paper notes that improved income among households creates a wealth effect that encourages households to own cars and consequently leads to high vehicular population, gas consumption and pollution. However, it underscores that a "good" tax on gasoline will prohibit individuals from driving, and encourage a good system that has better welfare results for both the poor and the rich.

The paper's findings show that the "burden" on fuel taxes impacts more on the high-income households who spend a higher proportion of their income on transport fuel compared to the low-income households. The authors suggest revising the fuel taxes in order to achieve emission reduction as well as increasing revenue potential to the treasury.

Policy recommendations are presented, including:

• there is need to improve the railway system and public bus/metro system
• there is need to revise taxes on high gasoline consumption vehicles which are not used for public transport
• there is need to examine the revenue potential from gasoline taxes and evaluate how these taxes can be used to compensate citizens from welfare losses by improving service delivery in transport and other sectors.