This paper shows that the State of São Paulo, by having a deliberated policy of different rates of taxation related to the consumer tax (ICMS) for gasoline C (25%) and hydrous ethanol (12%) has had a positive impact over: a) the consumption of ethanol; b) the economy of the State; and c) in the Brazil economy. To do so this study uses: a) an interregional input-output system for São Paulo and Rest of Brazil; and b) price and cross price-elasticity of the demand for gasoline and ethanol. The model was used to estimate how the economy would have behaved (GDP, employment, gross output, imports, and government revenue), had the rates of ethanol and gasoline being kept equal (25%).
hydrous ethanol; taxation; input-output matrix
