Implication of Switching Fuel Subsidy on Households Welfare in Nigeria

A critical view of how the various fuel pricing policies directed towards addressing the challenges of the fiscal stability of Nigerian economy will translate to improved social welfare is farfetched. This study used a static computable general equilibrium model to assess the impact of phased and withdrawal of PMS consumption subsidy as well as their alternative curtailing policies on the welfare of farm and non-farm households in Nigeria. Results showed that partial and total PMS subsidy reform with the subsidy gains conserved reduced households consumption level, increased their expenditures on all commodities and reduced social welfare by a worst ₦70.47 billion and lowest ₦40.80billion. However, an alternative policy of reallocating fuel subsidy into the crop and service sectors contributed largely to increased household consumption basket and utility increased as low as 0.11% on phased PMS subsidy reform measure among urban non-agriculture and as high as 0.35% among rural agricultural households on account of subsidy withdrawal measure. Thus, social welfare increased from a minimum gain of about ₦43.42 billion on the alternative policy to phased PMS subsidy reform and a maximum gain of about ₦67.90billion on the alternative policy to PMS subsidy withdrawal.

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JEL Codes:
I31; Q48

 Record created 2018-08-16, last modified 2020-10-28

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