Fuel Subsidies: The World's Dumbest Transportation Policy?

There are plenty of transportation policy ideas which get my spider-sense tingling. But in most cases, I think it’s at least possible to form a coherent case in favor which doesn’t strain the basic tenets of logical argumentation. However, I am pretty much at a loss when it comes to government subsidies for transportation fuel, a strong candidate for the title of the world’s dumbest transportation policy.

In the developed world, governments often don’t tax fuel enough to make up for the externalities produced by driving. (Yes, United States, stop shuffling your feet and looking at the ground, I mean you.) But I’ve whined about that enough in the past.

In this post, let’s look at an even more egregious situation that is disturbingly prevalent in the developing world, especially in oil-producing countries (see this). Many governments not only do not tax fuel enough, but actually expend revenue to subsidize fuel and keep gas prices artificially low. In effect, they are paying people to drive.

To Test or Not to Test

Many folks always ask me what the impact of randomized trials are on development. We at Innovations for Poverty Action and the M.I.T. Jameel Poverty Action Lab are dedicated to randomized trials to help push forward evidence-based policymaking. Yet what is the evidence that evidence shifts views? Not always so easy to do. I've done some work on the donor side, which I've reported on here before.  Here is a meta-study that uses two of my studies that found fairly different results. One found that access to credit in South Africa led to increased income, the other found that access to credit in the Philippines had no discernible impact on income.

The researchers sent off about 1,500 mailers to microfinance institutions around the world, telling them about the positive study, the negative (or non-positive, technically) study, or a placebo (no mention of a study), and asked them if they wanted to participate in a randomized trial to measure the impact of their organization.  They then saw which microfinance leaders responded, and whether they responded favorably or negatively.