Phasing Out Subsidies: Recent Experiences with Fuel in Developing Countries
Author: Robert Bacon and Masami Kojima Date: 8/25/2006 (PDF, 200KB)
Many developing countries subsidize petroleum products. The doubling of world oil prices since January 2004 has had very high fiscal costs for these countries, increasing public debt and squeezing other government spending. The subsidies have also had unintended consequences: fuel adulteration, smuggling, and benefits that go mostly to the better-off. But phasing out subsidies is politically challenging. This Note reviews some successful strategies for removing or reducing subsidies while protecting the poorest consumers.