The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries

September 1, 2010

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David Coady, and Javier Arze del Granado. The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries, (USA: International Monetary Fund, 2010) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper reviews evidence on the impact of fuel subsidy reform on household welfare in developing countries. On average, the burden of subsidy reform is neutrally distributed across income groups; a $0.25 decrease in the per liter subsidy results in a 6 percent decrease in income for all groups. More than half of this impact arises from the indirect impact on prices of other goods and services consumed by households. Fuel subsidies are a costly approach to protecting the poor due to substantial benefit leakage to higher income groups. In absolute terms, the top income quintile captures six times more in subsidies than the bottom. Issues that need to be addressed when undertaking subsidy reform are also discussed, including the need for a new approach to fuel pricing in many countries.

Subject: Consumption, Energy subsidies, Expenditure, Fuel prices, Income, Inflation, National accounts, Prices

Keywords: Budget share, Consumption, Cost, Distribution of fuel consumption, Electricity price, Energy subsidies, Fuel prices, Fuel subsidies, Impact of subsidy reform, Income, Inflation, Kerosene price, Middle East, Price, Price change, Price effect, Price fluctuation, Price impact, Price shifting, Prices of fuel products, Retail price, Share, WP

Publication Details

Pages:

23
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/202
Stock No:

WPIEA2010202
ISBN:

9781455205325
ISSN:

1018-5941

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