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

Author

Listed:
  • Mariza Montes de Oca Leon
  • Achim Hagen
  • Franziska Holz

Abstract

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.

Suggested Citation

  • Mariza Montes de Oca Leon & Achim Hagen & Franziska Holz, 2024. "The Political Economy of Fossil Fuel Subsidy Removal: Evidence from Bolivia and Mexico," IMF Working Papers 2024/230, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/230
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