An analysis of the fuel price policy dilemma in Brazil

Abstract

This paper uses a signal-restricted vector autoregression (VAR) model with weekly data from 2004 to 2022 to analyze Petrobras’s pricing policies across different political ideologies. We focus on these policies’ effects on Brazil’s economic variables, Petrobra’s financial performance, and societal satisfaction. Petrobras’ pricing significantly impacts domestic prices, economic activity, and the company’s financial health. Keeping fuel prices below international benchmarks boosts societal satisfaction and has minimal inflation impact but harms the company’s financial health. In contrast, aligning domestic with international fuel prices increases inflation and reduces voter satisfaction, even though the company performs better financially. Ultimately, the policies created societal discontent, and results indicate that no solution satisfies all stakeholders.