<< Chapter < Page Chapter >> Page >

Consider in more detail the experiences of Mexico and Indonesia.

Mexico uses monthly price ceilings to subsidize consumers of gasoline and diesel fuel. This results in a subsidy to gasoline and diesel consumption. The subsidies since 2006 have averaged about 40 cents a gallon (U.S.$) for gasoline and about 59 cents a gallon for diesel.

The Mexican government has maintained that the subsidy is necessary to protect the poor from higher fuel prices. “Getting Prices Right: Mexico’s Fuel Subsidies”, Federal Reserve Bank of Dallas, Southwest Economist , October 2013. The subsidy does not begin to satisfy its objective. According to 2010 Mexican data the poorest 2 deciles in the income distribution had only 3% of gasoline and diesel consumption.

On the other hand. The top two, richest deciles consumed 58.5% of gasoline and diesel. So, nearly 60% of 96% subsidy goes to wealthy households. The subsidy clearly has no earmarks of a pro-poor program.

In Indonesia, in many years over the past 3 decades the subsidy to domestic consumption of fossil fuels has been very high, in other years somewhat lower. The low years were always the years right after Indonesia increased prices of gas and diesel, indicating significantly high price elasticity of demand.

In some recent years, the Indonesian subsidy has amounted to as little as 13% and as much as 20% of government spending: one-fifth of a budget that cannot be spent on human capital formation, infrastructure or poverty reduction. In recognition of the problem, the Indonesian Government in 2014 twice increased fossil fuel prices 44% to cut the annual subsidy bill to $20 billion. Then in November, prices were again increased, by another 30%.

In Venezuela fuel prices are capped at less than U.S. 10 cents per gallon, and the energy subsidy costs 7% of GDP (see Table 15-2).

Worldwide, the International Energy Agency (IEA) estimates that in 2010 government spending on subsidies for consumption of fossil fuels amounted to about $408 billion. Of this amount, only $35 billion of worldwide energy subsidies benefitted the bottom 20% of the income distribution. Thus the poorest two deciles received only 9% of the total subsidy. “Getting Prices Right,” Mexico’s Fuels Subsidies, Dallas Fed, Southwest Economist , October 2013. Other research confirms this pattern. According to the International Monetary Fund (IMF) only 7% of total fuel subsidies go to the poorest 20% of households; while 43% goes to the richest 20%. “Fueling Controvery,” The Economist , January 11, 2014. The reader should ask:

Is this good income distribution policy?

Is this good resource allocation policy?

Is this good policy for reducing greenhouse gasses?

Is this good environmental policy – does it help reduce air pollution?

The answer to each of these questions is clearly no. If governments are concerned with the effects of fossil fuel purchases on poorer families, the fuel subsidies are decidedly inferior to cash transfers to the poor, to enable them to better shoulder the costs of higher fuel prices, cash subsidies for this purpose have been utilized since 2011 in Uganda and Iran.

Questions & Answers

Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
characteristics of micro business
for teaching engĺish at school how nano technology help us
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
what is the actual application of fullerenes nowadays?
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
is Bucky paper clear?
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Do you know which machine is used to that process?
how to fabricate graphene ink ?
for screen printed electrodes ?
What is lattice structure?
s. Reply
of graphene you mean?
or in general
in general
Graphene has a hexagonal structure
On having this app for quite a bit time, Haven't realised there's a chat room in it.
what is biological synthesis of nanoparticles
Sanket Reply
what's the easiest and fastest way to the synthesize AgNP?
Damian Reply
types of nano material
abeetha Reply
I start with an easy one. carbon nanotubes woven into a long filament like a string
many many of nanotubes
what is the k.e before it land
what is the function of carbon nanotubes?
I'm interested in nanotube
what is nanomaterials​ and their applications of sensors.
Ramkumar Reply
what is nano technology
Sravani Reply
what is system testing?
Got questions? Join the online conversation and get instant answers!
QuizOver.com Reply

Get the best Algebra and trigonometry course in your pocket!

Source:  OpenStax, Economic development for the 21st century. OpenStax CNX. Jun 05, 2015 Download for free at http://legacy.cnx.org/content/col11747/1.12
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Economic development for the 21st century' conversation and receive update notifications?

Anindyo Mukhopadhyay
Start Quiz