When Winners Feel Like Losers : Evidence from an Energy Subsidy Reform
In 2011 the Government of El Salvador implemented a reform to the gas subsidy that increased the welfare of households in all but the top two deciles of the income distribution. However, the reform turned out to be rather unpopular, especially amon...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/05/24488416/winners-feel-like-losers-evidence-energy-subsidy-reform http://hdl.handle.net/10986/21998 |
| Summary: | In 2011 the Government of El Salvador
implemented a reform to the gas subsidy that increased the
welfare of households in all but the top two deciles of the
income distribution. However, the reform turned out to be
rather unpopular, especially among winners. This paper
relies on ad hoc household surveys conducted before the
implementation and in the following two and a half years to
test which factors help explain the puzzle. The analysis
uses probit and logit models to show that misinformation (a
negativity bias by which people with limited information
inferred negative consequences), mistrust of the
government’s ability to implement the policy, and political
priors explain most of the (un)satisfaction before
implementation. Perceptions improved gradually—and
significantly so—over time when the subsidy reception
induced households to update their initial priors, although
political biases remained significant throughout the entire
period. The results suggest several implications with
respect to policy reforms in cases where agents have limited information. |
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