cover image: Energy Subsidies, Public Investment and Endogenous Growth

20.500.12592/c00ztc

Energy Subsidies, Public Investment and Endogenous Growth

1 Nov 2017

We consider impacts of fossil fuel subsidy reforms on economic growth, focusing mostly on the Middle East and North Africa (MENA) countries. The main empirical result is that a country that initially subsidizes its fossil fuels, and then eliminates or reduces these subsidies, will as a result experience higher economic GDP per capita growth, and higher levels of employment and labor force participation, especially among the young. These effects are strongest in countries whose fuel subsidies are high at the outset, such as in the MENA region. Our model predicts that a 20 US$ cents average increase in the gasoline and diesel prices per liter, through removal of subsidies, increase the GDP per capita growth rate by about 0.48% and 0.30%, respectively. In the MENA countries, governments’ savings from reduced subsidies seem to be earmarked mainly to health expenditures, education expenditures and public investment in infrastructure. These channels appear to be strong contributing factors to higher long-run growth when fuel subsidies are reduced.
taxation public investment economic growth public spending energy subsidies macroeconomics and economic growth :: economic theory & research macroeconomics and economic growth :: economic growth energy :: energy policies & economics macroeconomics and economic growth :: taxation & subsidies public sector development :: public sector expenditure policy

Authors

Mundaca, Gabriela

Associated content
Journal website (version of record)
Collection(s)
C. Journal articles published externally
DOI
http://dx.doi.org/10.1016/j.enpol.2017.08.049
Published in
United States of America
Rights
CC BY-NC-ND 3.0 IGO
Rights Holder
World Bank
Rights URI
http://creativecommons.org/licenses/by-nc-nd/3.0/igo
URI
http://hdl.handle.net/10986/29236
citation
Cited 7 times in Scopus (view citations)

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