If petrol/diesel prices keep rising, couldn’t governments just cap the cost of petrol/diesel to keep prices lower for consumers?

Question

Question’s in the title……
I’m no economist but I’m sure most of the cost of fuel is Fuel Duty (tax)….. so even though capping the price of fuel would mean governments making less money off fuel-duty, wouldn’t they make this back in VAT on other goods as consumer spending increases? (Because consumers have more money in their pocket?)

In: 2

Answer 1

First get to the facts. You’re wrong – fuel taxes aren’t a big contributor to gas price. It ranges from around $0.20 to $0.50 per gallon. (Highest is California). To break down gas prices, roughly 60% of the cost is based on crude oil price. Another 10-15% is refinery costs and the remaining transportation (and taxes).

So there is no reasonable way to reduce gas prices without subsidies of a sort. Capping gas prices will simply lead refiners and gas stations etc to stop selling and making fuel. No logical company would purchase raw materials for $0.60, add $0.30 in processing costs and sell the product for $0.50.

Either consumers pay for it directly, have the government (ie taxpayers) pay for some of it indirectly or not have gas at all.

EDIT: Assuming you live in the USA.