FUEL WATCH: EVIDENCE-BASED-POLICY OR POLICY-BASED-EVIDENCE?

Authors

  • DON HARDING

    Professor of Economics
    1. Department of Economics and Finance, La Trobe University
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      This paper is based on my evidence to the Senate Economics Committee inquiry into FuelWatch (Harding, 2008a, 2008b, 2008c, 2000d). I thank Trevor Breusch, Rob Hyndman, the editor and an anonymous referce for their comments. The usual disclaimer applies.


Abstract

Experience from the United Kingdom and the United States suggests that expert evidence is often reshaped and repackaged by governments so that it supports existing policy rather than informing policy decisions. The Australian Government based its decision to introduce FuelWatch on evidence in the form of econometric work by the ACCC. This paper asks two questions about that decision. First, was the policy shaped by the econometric evidence or was the Government's presentation of the evidence shaped by the pre-determined policy? Second, is the econometric evidence sufficiently robust as to support the FuelWatch policy? I find that some of the facts suggest that evidence was reshaped and repackaged to support the FuelWatch policy. I also find that the ACCC analysis was not robust. Specifically, they studied the nominal retail margin when economic theory suggests that analysis should focus on the real retail margin to producers. Using data digitized from a graph in the ACCC Report I redo the econometric analysis and find that the evidence no longer unambiguously supports the FuelWatch policy. The ACCC claim that their analysis is robust because it has been subject to scrutiny within the ACCC and by Treasury but such claims of robustness cannot be verified because they refuse to release the data for public scrutiny. Publication of data and analysis underpinning government decisions and independent review of econometric work provides a more credible evidence base for future policy decisions.

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