Tuesday, August 13, 2013

How Fuel Subsidies Around the World Burden the Rich and the Poor Alike, with Lessons for the US

I have posted frequently (most recently in a three-part series that starts here) on the topic of underpricing of energy in the United States, but we are not the only offender. Many countries around the world subsidize consumer energy prices in ways that bring them to levels even lower than what U.S. consumers pay. These policies burden the rich and the poor alike—rich countries like Saudi Arabia and poor ones like Egypt, and within each country, both rich and poor citizens.

How subsidies hurt the poor

Fuel subsidies both help and hurt consumers. The trouble is that poor consumers get a disproportionately small portion of the help and a disproportionately larger share of the hurt.
The help comes because subsidies make fuels more affordable. That not only reduces direct costs for cooking and lighting, but also indirectly holds other prices down, for example, by reducing transportation costs for food. For individual families, the price reductions can be most welcome. For example, a study by Arze del Granado and others, cited by the IMF study, found that an increase of $.25 per liter in the price of fuel would reduce the real purchasing power of a poor household by more than 5 percent. >>>Read more

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