When Do Subsidy Reforms Stick? Lessons from Iran, Nigeria, and India

November 17, 2017

Subsidies cost the world trillions of dollars each year. Governments provide subsidies for multiple reasons, yet many economists consider subsidies largely regressive, poorly targeted toward intended beneficiaries, and economically distortive and inefficient. Since energy subsidies are relatively large, it is useful to examine the motivations and implications of providing energy subsidies in particular. This paper covers qualitative case studies from Iran, Nigeria, and India to illustrate a series of lessons for governments implementing subsidy reform policies. From these three country experiences, we find that fostering public support to implement lasting reform may depend on four measures: (1) forming a public engagement plan and a comprehensive reform policy that are then clearly communicated to the public in advance of price increases; (2) phasing in price adjustments over a period of time to ease absorption; (3) providing a targeted compensatory cash transfer to alleviate financial impacts on low- to middle-income households; and (4) capitalizing on favorable global macroeconomic conditions.

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