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A Guide to the Political Economy of Reforming Energy Subsidies

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  • Commander, Simon

    () (EBRD, London)

Abstract

Energy subsidies are used widely. Although adverse from an efficiency perspective, subsidies confer private benefits on particular groups and, once introduced, tend to be persistent. This paper examines the reasons why and possible ways of overcoming the barriers to reform. The starting point is to look at the motives lying behind the adoption of energy subsidies. Distributional motives were found to figure prominently while the role of interested parties or lobbies is also common. The paper then looks at the characteristics of countries that use energy subsidies. Countries with weak institutions – often non-democracies – tend to be associated with higher subsidies. The paper then looks at how country level conditions and constraints can be identified. An analytical-cum-policy framework allowing identification of the key constraints is proposed before turning to the types of policies – contingent on institutional capacity – that can address those constraints, such as compensating transfers. The paper also indicates how a better understanding of citizens’ policy preferences and the trade-offs that are likely to be accepted is essential for designing reform.

Suggested Citation

  • Commander, Simon, 2012. "A Guide to the Political Economy of Reforming Energy Subsidies," IZA Policy Papers 52, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izapps:pp52
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    Cited by:

    1. repec:eee:eneeco:v:67:y:2017:i:c:p:242-254 is not listed on IDEAS
    2. repec:eee:enepol:v:108:y:2017:i:c:p:617-623 is not listed on IDEAS
    3. Henok Asmelash, 2016. "Falling oil prices and sustainable energy transition: Towards a multilateral agreement on fossil-fuel subsidies," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    4. Matar, Walid & Murphy, Frederic & Pierru, Axel & Rioux, Bertrand, 2015. "Lowering Saudi Arabia's fuel consumption and energy system costs without increasing end consumer prices," Energy Economics, Elsevier, vol. 49(C), pages 558-569.
    5. repec:eee:eneeco:v:71:y:2018:i:c:p:149-160 is not listed on IDEAS
    6. Scobie, Michelle, 2017. "Fossil fuel reform in developing states: The case of Trinidad and Tobago, a petroleum producing small Island developing State," Energy Policy, Elsevier, vol. 104(C), pages 265-273.
    7. Mundaca, Gabriela, 2017. "Energy subsidies, public investment and endogenous growth," Energy Policy, Elsevier, vol. 110(C), pages 693-709.

    More about this item

    Keywords

    political economy; energy; subsidies; transfers;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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