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When winners feel like losers : evidence from an energy subsidy reform

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  • Calvo-Gonzalez,Oscar
  • Cunha,Barbara
  • Trezzi,Riccardo

Abstract

In 2011 the Government of El Salvador implemented a reform to the gas subsidy that increased the welfare of households in all but the top two deciles of the income distribution. However, the reform turned out to be rather unpopular, especially among winners. This paper relies on ad hoc household surveys conducted before the implementation and in the following two and a half years to test which factors help explain the puzzle. The analysis uses probit and logit models to show that misinformation (a negativity bias by which people with limited information inferred negative consequences), mistrust of the government?s ability to implement the policy, and political priors explain most of the (un)satisfaction before implementation. Perceptions improved gradually?and significantly so?over time when the subsidy reception induced households to update their initial priors, although political biases remained significant throughout the entire period. The results suggest several implications with respect to policy reforms in cases where agents have limited information.

Suggested Citation

  • Calvo-Gonzalez,Oscar & Cunha,Barbara & Trezzi,Riccardo, 2015. "When winners feel like losers : evidence from an energy subsidy reform," Policy Research Working Paper Series 7265, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7265
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    References listed on IDEAS

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    1. Sweder J. G. van Wijnbergen & Tim Willems, 2016. "Learning Dynamics and Support for Economic Reforms: Why Good News Can Be Bad," World Bank Economic Review, World Bank Group, vol. 30(1), pages 1-23.
    2. Sanjay Jain & Sharun W. Mukand, 2003. "Redistributive Promises and the Adoption of Economic Reform," American Economic Review, American Economic Association, vol. 93(1), pages 256-264, March.
    3. Maria Vagliasindi, 2013. "Implementing Energy Subsidy Reforms : Evidence from Developing Countries," World Bank Publications, The World Bank, number 11965, September.
    4. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    5. Edward L. Glaeser & Cass R. Sunstein, 2013. "Why Does Balanced News Produce Unbalanced Views?," NBER Working Papers 18975, National Bureau of Economic Research, Inc.
    6. Veldkamp, Laura, 2009. "Learning about reform: Time-varying support for structural adjustment," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 192-206, March.
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    Cited by:

    1. Neil McCulloch, 2017. "Energy subsidies, international aid, and the politics of reform," WIDER Working Paper Series 174, World Institute for Development Economic Research (UNU-WIDER).
    2. repec:oup:renvpo:v:11:y:2017:i:1:p:138-155. is not listed on IDEAS
    3. repec:eee:enepol:v:107:y:2017:i:c:p:188-196 is not listed on IDEAS
    4. C├ęcile Couharde & Sara Mouhoud, 2018. "Fossil fuel subsidies, income inequality and poverty. Evidence from developing countries," EconomiX Working Papers 2018-42, University of Paris Nanterre, EconomiX.
    5. Stephane Hallegatte & Mook Bangalore & Laura Bonzanigo & Marianne Fay & Tamaro Kane & Ulf Narloch & Julie Rozenberg & David Treguer & Adrien Vogt-Schilb, 2016. "Shock Waves," World Bank Publications, The World Bank, number 22787, September.

    More about this item

    Keywords

    Economic Theory&Research; E-Business; Children and Youth; Technology Industry; Taxation&Subsidies;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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