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Working Paper

Impacts on Poverty of Removing Fuel Import Subsidies in Nigeria

PROFIT MAXIMIZATION EMPLOYMENT FUEL SUBSIDIES CANE GOVERNMENT EXPENDITURES ANIMAL PRODUCTS PRICE OF FUEL PRODUCTION PRICE INCREASES BARRIER INCOME ENERGY PRICING PERFECT COMPETITION VEHICLES ACTIVITIES REAL GDP EXCHANGE GOOD GOVERNANCE EXPORTS DEVELOPING COUNTRIES WOOD PRODUCTS ELASTICITY POLITICAL ECONOMY REGULATORY AGENCY WELFARE VARIABLES DOMESTIC PRICE GAS BARRELS PER DAY SUBSIDY PRICE TAX REAL INCOME INPUTS SOCIAL COST RETURNS TO SCALE PAYMENTS AIR TRANSACTION COST DEVELOPMENT OILS TRADE BALANCE PETROLEUM SAVINGS ROAD PETROLEUM PRODUCTION COSTS OIL TELECOMMUNICATIONS ROAD SECTOR TRANSPORT KEROSENE SUBSIDIES CONSTANT RETURNS TO SCALE DEMAND FOR PETROLEUM PRODUCTS WATER EXTERNALITIES FAILURES INCREASING RETURNS DEBT SUGAR CANE TRANSPORT EQUIPMENT PRICE SUBSIDIES UTILITY NATURAL RESOURCES GROSS DOMESTIC PRODUCT NOMINAL INCOME FUEL CONSUMPTION FUELS SUBSIDIES ECONOMIC RESEARCH INFRASTRUCTURE TAXES PRICE CHANGE AUTOMOBILES INVESTORS CONSUMPTION TRANSPORTATION WAGES POLICIES TRUCKS BALANCE MARKET PRICES VALUE TRADING PATTERNS POWER ELECTRICITY OIL REFINING CAPACITY DEMAND FOSSIL FUEL PRICE CHANGES ECONOMY AGRICULTURE CONSUMERS INCOMES MOTOR VEHICLES ECONOMIC EFFICIENCY IMPORTS OF PETROLEUM FUEL PRICES OIL REFINING SHARES ENERGY USE ECONOMIC THEORY ENERGY PRICES PETROLEUM SECTOR COST OF TRANSPORTATION ENERGY EFFICIENCY GOVERNANCE TRADE NATURAL GAS VOLATILE ENERGY AIR TRANSPORT GDP GOODS THEORY INVESTMENT FUEL PRICE SHARE COAL FUEL CRUDE OIL SEA TRANSPORT INVESTMENTS COSTS OF TRANSPORT DOMESTIC PETROLEUM CONSUMPTION OF PETROLEUM PETROLEUM PRODUCTS KEROSENE COMMODITY FOSSIL POSITIVE EFFECTS FUEL COST PRODUCERS OF PETROLEUM PRICES APPROACH PRODUCTION COSTS ENERGY DEVELOPMENT POLICY COMPETITION
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World Bank, Washington, DC
Africa | Nigeria
2015-08-17T19:46:46Z | 2015-08-17T19:46:46Z | 2015-07

The petroleum sector contributes substantially to the Nigerian economy; however, the potential benefits are diminished because of the existence of significant subsidies on imports of petroleum products. Subsidies on imported petroleum products are considered to be an important instrument for keeping fuel prices, and hence the cost of living, low. The costs of these subsidies, however, have risen dramatically in recent years along with increased volatility in world petroleum and petroleum product prices and increased illegal exportation of subsidized petroleum products into neighboring countries. Removing the subsidy on fuel is one of the most contentious socioeconomic policy issues in Nigeria today. In this paper, an economy-wide framework is used to identify the impact of removing the fuel subsidy on the Nigerian economy and investigate how alternative policies might be used to meet socioeconomic objectives related to fuel subsidies. The results show that although a reduction in the subsidy generally results in an increase in Nigeria’s gross domestic product, it can have a detrimental impact on household income, and in particular on poor households. Accompanying the subsidy reduction with income transfers aimed at poor households or domestic production of petroleum products can alleviate the negative impacts on household income.

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