The Political Economy of Energy Subsidy Reform
Gabriela Inchauste · David G. Victor
Mar 2017 · World Bank Publications
Ebook
270
Pages
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About this ebook
This book proposes a simple framework for understanding the political economy of subsidy reform andapplies it to four in-depth country studies covering more than 30 distinct episodes of reform.Five key lessons emerge. First, energy subsidies often follow a life cycle, beginning as a way to stabilize pricesand reduce exposure to price volatility for low-income consumers. However, as they grow in size and politicalpower, they become entrenched. Second, subsidy reform strategies vary because the underlying politicaleconomy problems vary. When benefits are concentrated, satisfying (or isolating) interest groups withalternative policies is an important condition for effective reform. When benefits are diffuse, it can be muchharder to identify and manage the political coalition needed for reform. Third, governments vary in theiradministrative and political capacities to implement difficult energy subsidy reforms. Fourth, improvementsin social protection systems are often critical to the success of reforms because they make it possible totarget assistance to those most in need. Finally, the most interesting cases involve governments that take astrategic approach to the challenges of political economy. In these settings, fixing energy subsidies is centralto the governments’ missions of retaining political power and reorganizing how the government deliversbenefits to the population. These cases are examples of “reform engineering,” where governments activelyseek to create the capacity to implement alternative policies, depoliticize tariffs, and build credibility aroundalternative policies.The most successful reforms involve active efforts by policy leaders to identify the political forces supportingenergy subsidies and redirect or inoculate them.
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