Broad-Based Consumer Subsidies as 'Policy Traps': The Case of Utilities Subsidies in Post-Crisis Argentina
40 Pages Posted: 15 Jul 2012 Last revised: 20 Aug 2012
Date Written: 2012
Developing countries devote significant resources to lowering consumer prices for basic goods and services such as food and electricity. This paper examines the political logic behind the adoption and growth of broad-based consumer subsidies. We argue that they often constitute “policy traps,” or ad hoc measures to address unexpected problems, that quickly become entrenched. At first, consumer subsidy programs are affordable measures intended to help the population cope with income shocks or increase regime loyalty by distributing windfall profits from resource sectors. Over time, however, environmental pressures and fears of political backlash against repeal reinforce one another, greatly increasing the fiscal burden subsidies impose. We utilize this framework to analyze the meteoric growth of utilities subsidies in Argentina following the country’s 2001-2002 economic crisis.
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