Fossil Fuel Subsidies: Impacts and Reform Strategies

• Main Author: Good, Jennifer E
• Format: Others
• Published: Scholarship @ Claremont 2013
• Subjects: Energy subsidies; fossil fuel; reform strategies; Middle East and North Africa; social safety net; politics; Agricultural and Resource Economics; Comparative Politics; Economic Policy; Energy Policy; Environmental Policy; Growth and Development; International Economics; Macroeconomics; Other Economics; Other International and Area Studies; Political Economy; Public Policy
• Online Access: http://scholarship.claremont.edu/cmc_theses/687; http://scholarship.claremont.edu/cgi/viewcontent.cgi?article=1567&context=cmc_theses

This thesis uses cross-country panel regressions to identify the effects of fossil-fuel subsidies for both oil importers and oil exporters on GDP growth, industry growth, crowding out of government expenditures in education, health, and infrastructure, government debt, carbon dioxide emissions, inequality and poverty. Fossil-fuel subsidies are found to be associated with lower levels of growth and industry growth, less government expenditure on health and education, poorer infrastructure quality, more government debt, and higher rates of carbon dioxide emissions. No relationship is found between fossil fuel subsidies and poverty and inequality. These results confirm the arguments of those that argue that fossil-fuel subsidies should be rationalized. However, removing subsidies is politically challenging. In order to identify strategies for fossil fuel reform, the successful reform efforts of Indonesia and Turkey are examined. These cases are then used to draw lessons for governments undertaking subsidy reform. The key strategies used were to exempt some regions, groups, or fuels from reform, use funds from subsidy removal for social safety nets and other poverty alleviation programs, time the reforms strategically, and communicate clearly to the public the reason for reform and how the funds will be used. These lessons are applied to countries in the developing Middle East and North Africa, including Egypt, Jordan, Syria, Algeria, Tunisia, and Morocco.