Petroleum Product Subsidies. Costly, Inequitable, and Rising (IMF 2010)

Petroleum product subsidies have again started to rise with the rebound in international prices. This note reviews recent developments in subsidy levels and argues that it is necessary to reform the policy framework for setting petroleum product prices in order to reduce the fiscal burden of these subsidies and to address climate change. Halving tax-inclusive subsidies could reduce projected fiscal deficits by one-sixth in subsidizing countries and could reduce greenhouse emissions by around 15 percent over the long run. Subsidy reform strategies should contain measures to mitigate the impact of higher prices on the poorest groups. Position note prepared by David Coady, Robert Gillingham, Rolando Ossowski, John Piotrowski, Shamsuddin Tareq, and Justin Tyson.