Energy Dividends in Bolivia: Are There Any Alternatives to Price Subsidies?

Bolivia, like many other fuel producers, subsidizes the domestic consumption of energy heavily, particularly oil and natural gas. The extent of these subsidies is not widely recognized; neither is their regressive nature or their long-term negative externalities. The paper estimates the magnitude of the subsidies and offers an approximate picture of their incidence by income decile. While the rich consume many times the level of energy-intensive products and services than the poor, household surveys indicate that, in relative terms, increasing energy prices would hit the poor more. The paper considers options for shifting from price subsidies towards more equitable and efficient direct transfers or “energy dividends.” Particularly if provided on a universal basis, these would be compatible with the prevailing ideology in Bolivia that natural resources are the property of the people. The paper also notes that Bolivia has the capacity to implement such a compensation program efficiently and effectively—systems exist to identify its citizens accurately for transfers, as well as to pay them. Existing programs, such as Renta Dignidad, which is funded out of taxes on oil, have made substantial investments in such capacity, and provide models to build on. With few ideological or technical obstacles to reforming the subsidy system, the first step to raising the political profile of reform is to increase awareness of the problem and the possibilities. The paper makes some suggestions in this area.