Subsidizing power
| Published date | 01 July 2020 |
| Author | Jeroen Klomp |
| DOI | http://doi.org/10.1111/sjpe.12235 |
| Date | 01 July 2020 |
300
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Scott J Polit Econ. 2020 ;67:300–321.
wileyonlinelibrary.com/journal/sjpe
Accepted: 2 September 2019
DOI: 10 .1111/sjpe.1 2235
ORIGINAL ARTICLE
Subsidizing power
Jeroen Klomp1,2
This is an open ac cess article und er the terms of the Crea tive Commons Attr ibution-NonCo mmercial License , which permits
use, distri bution and reprod uction in any medium , provided the orig inal work is properl y cited and is not used fo r commercial
purposes.
© 2019 The Author. Scot tish Journal of Polit ical Economy publis hed by John Wiley & Son s Ltd on behalf of Scotti sh Economic
Society
1Wageningen University, Wageningen, the
Netherlands
2Netherlan ds Defence Academy, Bre da, the
Netherlands
Correspondence
Jeroen Klomp, Wageningen University
& Research, Eco nomics Cluster, P.O.
Box 8130, 6700 EW, Wagen ingen, the
Netherlands.
Email: jeroen.klomp@wur.nl
Abstract
This study explo res whether the amount of fossil fuel su bsi-
dies paid by the government is s ubject to an elect ion cycle.
Theoretically, it is not a pr iori directly clear wheth er the pro-
vision of fossil fuel subsid ies should go up or down whe n
elections are up coming. On the one hand, government s may
reap electoral b enefits from of fering additional su pport in
an election year sin ce voters generally prefe r candidates
from whom they expe ct to receive greater material well-be-
ing by reducing the pri ces of basic goods. On the other hand ,
if the number of recipie nts is only small or whe n they are
politically not well o rganized, reducing f ossil fuel subsidies
to finance a tax cut or a n increase in other publ ic spending
areas that benefit a nd attract mor e voters might be a more
successful re-election strategy. My main empirical findings
clearly show a U-shap ed election ef fect. It turns out t hat
election cycle s encourage fossil fuel s upport only in cou n-
tries that have either a la rge or small fossil fuel de mand. In
these countries , governments are more in clined to provide
additional fossil fu el support in an election year. In turn , I do
not find any signific ant evidence for the notion that upcom-
ing elections cre ate a window of opportunity to reduce fo s-
sil fuel subsidies. Fi nally, the significant el ection effects are
in particular visible during presidential elections.
KEYWORDS
elections, f ossil fuel subsidies, pol itical budget cycles
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301
KLOMP
1 | INTRODUCTION
Many countries ar ound the world suppor t the use of fossil fuels by comp anies and households t hrough a complex
array of policy m easures like tax c redits or direc t transfer s. Different r ationales for su ch pervasive s tate inter-
ventions are prop osed, such as reducing the cos t of living of poor household s, supporting internat ional competi-
tiveness of domestic firms, or diversifying energy use. The International Energy Agency (IEA) estimated that the
global amount of co nsumer subsidies to foss il fuels in 2014 amounted to abou t $410 billion or about 0.6% of world
GDP. Consumer subsidies t o oil and natural gas constit uted more than two-thirds of t his total amount.
The last couple of ye ars, fossil fuel subsidies are ba ck on the political agenda as, de spite their popularity, fuel
subsidies are hig hly inefficient . They encourage wast e, excessive consumptio n, the maintenance of ene rgy-intensive
processes and h abits, and dis courage the devel opment and adopt ion of energy-s aving technolog ies. Also, many
studies have st ressed the large fisca l costs that are involved wi th energy subsidies (i .e., IEA, 2011; IMF, 2013; Parry,
Heine, Lis, & Li, 2 014). Although there is some indi cation that globally fos sil energy subsidy rate s have been coming
down slowly over the l ast decade, they are st ill rather significa nt and persistent in many cou ntries. One explanat ion
for the slow spee d of reform is that fossil f uel subsidies are not only provide d for economic reas ons but are also
being used for po litical purposes . Incumbents have powe rful incentives to af fect voters' behavio r by using economic
policies to secu re the suppor t of particular co nstituencie s. With fossil fu el subsidies, th e government can e asily
target specif ic constituencies to a ttract votes for the n ext election (Stra nd, 2013). Even more so, voters who b enefit
most from thes e subsidies are usually of po litical importa nce due to their organiza tional advantage over oth er more
diffused interests and are therefore more successful in mobilizing vigorous resistance against any major subsidy
reform. Meanwh ile, fossil fuel subsidies lower th e marginal costs of producer s that rely intensively on this ener gy
source. When th is discount is also passed on i n the final price, the dis posable incomes of ta xpayers increase the reby
making the tota l tax burden associated w ith fossil fuel subsidies s ocially affordable (i .e., Klomp & De Haan, 2013).
This rent seeki ng behavior might especially be v isible when elections are up coming as voters base their vot-
ing decision main ly on the recent past. The elec toral use of fossil fuel subsidies i s well known in anecdotes. For
instance, seve ral case stud ies demonstr ate that the governm ents of India and Rus sia have hesitated to r educe
subsidies or have rep eatedly revised tar gets downwards when e lections were upcom ing because of the sign ificant
political powe r held by those who benef it from current subsid y rates (Lockwood, 2015; O verland, 2010; Overlan d
& Kutschera, 2 011; Tongia, 2007; Zahar iadis, 2008).
However, one can also arg ue that when govern ments are facin g a budget constr aint, energ y subsidies may
come at a high fisca l cost. For inst ance, when the ad ditional ener gy subsidies pr ovided in an elec tion year are
compensated by hi gher taxes from other s ources, public spen ding cuts, or an incre ase in the fiscal defi cit, this may
actually res ult in fewer votes during the el ections.1 This is espec ially true when the grou p of major beneficiarie s is
only small or not wel l organized. Thus, elec tions might in these situ ations even create a window of op portunity to
reduce energ y subsidies to finance an ele ction-motivated expans ion in other public serv ices (i.e., health care, ed-
ucation, infr astructure, social s ecurity, etc.) that benefit s and attracts a lar ger share of voters. Besides, f ossil fuel
subsidies are hig hly inefficient as t hey promote excessive pol lution and CO2 emissions . If voters value the envir on-
mental quality high enough, they will punish the incumbent government during the next election when they sup-
port fossil fu el use.
Thus, whether the amount of fossil fuel subsidies paid by the government should go up or down when elec-
tions are upcomi ng is contested and theo retically a priori n ot directly clear. Theref ore, one can argue tha t whether
or not fossil fuel su bsidies are used for rent s eeking purposes by t he incumbent is ultim ately an empirical qu estion.
Surprisingl y there exists only little q uantitative evidence on this is sue (Pani and Perroni, 2016). My contribu tion
tries to fill thi s gap in the literature by exp loring empirically u nder which circumst ances the provision of fossil f uel
1 For instanc e, Brender and D razen (2008) r eport that fi scal deficit s reduce the pro bability that a n incumbent is re -elected as vot ers are more
conservative and punish politicians who create deficits.
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