Political Economy Aspects of Fuel Subsidies: A Conceptual Framework

27 Pages Posted: 20 Apr 2016

Date Written: March 1, 2013

Abstract

While notoriously inefficient, fuel subsidies are widespread, and in many cases politically stable. This paper discusses and models various political economy aspects of fuel subsidies, focusing on gasoline and kerosene. Both economic and political are considered to explain differences in subsidies, with particular focus on democratic and autocratic governments. A political process is modeled whereby a promise of low fuel prices is used in democracies to attract voters, and in autocracies to mobilize support among key groups. Subsidies to fuels are viewed as either easier to observe, easier to commit to, easier to deliver, or better targeted at core groups, than other public goods or favors offered by rulers. Easier commitment and delivery than for regular public goods can explain the high prevalence of such policies in autocracies, and also in young democracies where the capacity to commit to or deliver complex public goods is not yet fully developed. The analysis provides a framework for empirical testing and verification.

Keywords: Transport Economics Policy & Planning, Economic Theory & Research, Energy Production and Transportation, Transport and Environment, Public Sector Economics

Suggested Citation

Strand, Jon, Political Economy Aspects of Fuel Subsidies: A Conceptual Framework (March 1, 2013). World Bank Policy Research Working Paper No. 6392. Available at SSRN: https://ssrn.com/abstract=2240804

Jon Strand (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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