I have no idea why I did not publish the previous post two years ago.
Here is a longer view of the difference between U.S. and Mexican gasoline prices. It makes it clear that Mexican policy has been to smooth energy price fluctuations, rather than provide a blanket permanent subsidy.
The main way the policy worked was via a variable excise tax on gasoline, in addition to controls on the underlying fuel price. When fuel prices rose, the excise tax dropped. The end result was greater stability in prices and presumably insulation against price shocks.
Of course, saying that the policy brought benefits is not the same as saying that it had no costs. Below you can see them estimated for 1998-2012. They fell, of course, in 2013-14 and fuel tax revenues likely exceeded subsidies again in 2015.
Anyway, the policy is on its way out. In 2013, it did not look as though the Mexican fuel retail sector would be liberalized. But it will be! Look for non-Pemex stations coming your way. And starting this year fuel prices will be allowed to fluctuate in a 3% band around in the inflation rate, with the base price linked to the gasoline price on the U.S. Gulf Coast. The variable excise tax will be replaced by a fixed tax of US$1.01 per gallon for Magna, 86¢ for premium and $1.11 for diesel. I have no idea why the tax varies so much between grades. I guess somebody wants people to buy high-octane fuel.
The fixed tax is a terrible idea, but maybe Mexican politics will be less sclerotic than American. Anyway, free imports will be allowed next year and all price controls are due to be scrapped in 2018, so the incoming administration will want to come up with a new tax plan anyway.
On balance, I support price decontrol. But as I argued in the last post, there were benefits to the Mexican system of price smoothing. The rub was that Mexico is an importer of refined products, so the controlled prices had an impact on the government’s cash flow, which in the real world is far more problematic than a subsidy paid for by incurring an opportunity cost.