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

David Coady and Francisco Arze del Granado ()
Authors registered in the RePEc Author Service: Robert Gillingham

No 10/202, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Developing countries; Oil pricing policy; Oil prices; Oil subsidies; Price increases; Private consumption; Income distribution; Welfare; fuel subsidies, impact of subsidy reform, distribution of fuel consumption, subsidies, fuel prices, subsidy, fuel price, fuel consumption, Taxation, and Revenue: General, Taxation and Subsidies: Incidence, Fiscal Policies and Behavior of Economic Agents: Household, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-cwa and nep-ene
Date: 2010-09-01
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Journal Article: The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries (2012) Downloads
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