Benefit Incidence of Fuel Subsidies in Madagascar and Recommendations for Child-Friendly Reallocation

Fuel subsidies lead to environmental damage through inefficiencies in energy use, they are a burden for public budget and moreover they are regressive, benefiting the already better off households. Despite, these negative qualities, energy subsidies are still implemented throughout the World. Post-tax energy subsidies in the World are estimated to be 5.3 trillion USD while fuel subsidies alone, are estimated to be 1.5 trillion USD, making up 1.8 percent of the global GDP in 2015. Although fuel subsidies are regressive, fuel subsidy reforms impact the poor the hardest. Previous experience with fuel subsidy reforms around the World show that, poverty increases as a result of fuel subsidy removal if it is not mitigated with redistribution efforts like cash transfers.