Fuelling the green transition: the direct and indirect effects of fuel subsidy reforms in the Andean region

The aim of this paper is to analyse the distributional effects of fuel subsidy reforms in four countries of the Andean region: Bolivia, Colombia, Ecuador, and Peru. The analysis combines tax-benefit microsimulation techniques with input-output analysis to estimate the direct and indirect distributional effects of the reforms, and the role played by enhanced social assistance in protecting vulnerable households. Our results show that the removal of fuel subsidies has a negative impact on household income, particularly for those at the bottom of the distribution, which increases poverty. Recycling the revenue saved from the removal of subsidies to increase the generosity of existing social protection programmes mitigates the increase in poverty but to different extents across countries. This reflects differences in the current targeting of social protection programmes in the countries under study and highlights the importance of designing fiscal policies that consider the socioeconomic disparities and benefit systems within each country, as well as the advantage of combining different research infrastructures for the analysis of fuel subsidy reforms.