Fossil-fuel subsidy reform and the link between popular opposition and information

Abstract: Fossil-fuel subsidy reform stands high on the international agenda. Fossil fuels are generously subsidised despite the fact that unambiguous research shows that the subsidies cause crowding out of public social spending, fiscal pressure, higher emission of greenhouse gases and increased social inequality. Popular opposition constitutes one of the main barriers to subsidy reforms and a deeper understanding of it is of both national and global importance, as it could facilitate the phasing-out of fossil-fuel subsidies. In this paper we study the role information has on people's attitudes towards fossil-fuel subsidy reforms. By developing a theoretical framework we show why uninformed individuals are more likely to oppose reforms: as they are not aware of subsidies' aggregate impact they misjudge their utility. We test the framework's predictions by applying a probit model to data on Indian households. The empirical results substantiate the theoretical findings of a stronger opposition amongst uninformed individuals.