The credibility gap: Low trust in government stands in the way of fuel subsidy reform
- Impact Area
By all accounts, fossil fuel subsidies are disastrous public policy. They encourage us to consume more carbon-intensive fuel and discourage investments in energy efficiency and renewables. They are an incredibly inefficient way to help poor households, as most subsidy benefits are captured by richer, urban households. And they wreak havoc on fiscal resources, sapping around 6.5 percent of global GDP.
Development researchers and practitioners have thus long discussed the benefits that could be created by eliminating these subsidies, freeing up fiscal resources for more worthwhile expenditures like education, infrastructure, and targeted social safety net programs. Yet attempts to shrink subsidies often trigger strong political backlash: The downfall of Suharto, the Saffron Revolution in Myanmar, and Occupy Nigeria have all been linked to attempts to raise fuel prices.