IMF Working Papers

The Political Economy of Fossil Fuel Subsidy Removal: Evidence from Bolivia and Mexico

By Mariza Montes de Oca Leon, Achim Hagen, Franziska Holz

November 1, 2024

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Format: Chicago

Mariza Montes de Oca Leon, Achim Hagen, and Franziska Holz. "The Political Economy of Fossil Fuel Subsidy Removal: Evidence from Bolivia and Mexico", IMF Working Papers 2024, 230 (2024), accessed November 6, 2024, https://doi.org/10.5089/9798400290480.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the impact of fossil fuel subsidy removal on presidential popularity using difference-indifference approaches and a stylized theoretical model. Analyzing macro level data for two subsidy removal events in Mexico and Bolivia in the early 2010s, we find evidence of a negative impact on presidential approval. Our theoretical probabilistic voting model predicts that the decline in popularity is driven by high income groups if subsidies are regressive, and that lack of trust in the government lowers popularity of the removal in all income groups. We confirm these predictions using micro level data for the Mexican subsidy removal event.

Keywords: Fossil fuels, Political economy, Subsidy removal

Publication Details