Fuel subsidy reform and the social contract in Nigeria: A micro-economic analysis

Fuel subsidies in Nigeria are enormous – around USD 3.9 billion – almost double the health budget. Such subsidies come at great cost: the opportunity costs of such spending on other development objectives are large; the distribution of resources to the state governments is reduced; the vast majority of the subsidy goes to better off Nigerians; and cheaper petrol encourages greater pollution, congestion and climate change. Despite this, most Nigerians oppose the reduction of subsidies. We draw on a new nationally representative household survey that asked Nigerian men and women about their knowledge and attitudes towards subsidies. We construct and test a set of hypotheses about the factors associated with support for subsidy reform. We find that those who pay more or who experience less availability of fuel tend to support reform more. On the other hand, people who believe the Government is corrupt or lacks the capacity to implement compensation programs appear strongly opposed to reform. Finally, being religious and the delivery of reasonable national and local services also improves the acceptance of reform. These results support the idea that building a social contract is key to reform success.

Coded 1 for "Because the money will be corrupted" and 0 for the responses that (very) confident that the money will be used appropriately, omitting "don't know/refused") Lack of capacity How confident are you that the money saved by the government from the reduction of fuel subsidy will be used appropriately for the greater good of public interest? (for the respondents who said "either doubtful or very doubtful," we asked "What is the main reason?" Because the money will be corrupted (1), Because the government is not capable of running programs efficiently (2), Don't' know / Refused (98/99) Coded 1 for "Because the government is not capable of running programs efficiently" and 0 for the responses that (very) confident that the money will be used appropriately, omitting "don't know/refused") Opinion about services in the area: Electricity supply Some people are satisfied with the quality of public services in this area. Others are dissatisfied with the public services. What is your opinion about the following services in this area? Electricity supply Very dissatified (1) ---Very satisfied (5), no services in my area (0), Don't' know / Refused (98/99) Coded as an ordinal variable (from 1 to 5 where the higher value denotes the higher level of satisfaction, omitting "don't know/refused") Opinion about services in the area: Bus services Some people are satisfied with the quality of public services in this area. Others are dissatisfied with the public services. What is your opinion about the following services in this area? Bus services Very dissatified (1) ---Very satisfied (5), no services in my area (0), Don't' know / Refused (98/99) Coded as an ordinal variable (from 1 to 5 where the higher value denotes the higher level of satisfaction, omitting "don't know/refused") Quality of government services provided by State Govnmt compared to 3 yrs ago What do you in general think of the quality of government services provided by this state Government today compared to three years ago?
Worse than before (1), About the same (2), Better than before (3), Don't' know / Refused (98/99) Coded as an ordinal variable (from 1 to 3 where the higher value denotes the higher level of satisfaction, omitting "don't know/refused") Membership of religious group Do you belong/affiliated to any religious group/association? Yes (1), No (2) Coded 1 for "Yes" and 0 otherwise Understanding of subsidy granted Please explain that the official price of PMS/Petrol/Fuel is N 145 per litre. Explain also that in order to meet domestic demand, the government of Nigeria buys PMS/Petrol and other fuels from oil companies at home and abroad. After that, the government distributes and sells them through retail Petrol/Filling stations. The government also determines the value of the fuel price sold to the public through retail Petrol/Filing stations.
Price at which the government purchases PMS/Petrol/Fuel from the oil companies is (lower (1) / same (2) / higher (3)) than the price of PMS/Petrol/Fuel sold to the public at N 145 Coded 1 for "Higher (3)" and 0 otherwise Deviation from N145 During the last one week, what was the total amount spent by your whole household on these types of fuel? PMS (Petrol/Fuel) -How much Naira spent [Put 0 if you did not purchase this fuel during the last week] Naira spent We substracted 145 from the amount of Naira spent for PMS General trust in state government Do you think the state Government in this area acts more for the good of the local people or more for its own interests?
Acts more for the good of the people in this State (1), Acts more for its own interests?
(2), Don't' know / Refused (98/99) Coded 1 for "for the good of the people in this state" and 0 otherwise (omitting "don't know/refused") General trust in local government Do you think the local Government in this area acts more for the good of the local people or more for its own interests? Acts more for the good of the local people (1), Acts more for its own interests? (2), Don't' know / Refused (98/99) Coded 1 for "for the good of the local people" and 0 otherwise (omitting "don't know/refused") Tax for development I am now going to read you two statements about taxation. After I have read both statements please tell me how much you agree or disagree with each statement. a) Citizens must pay their taxes to the Government in order for the country to develop    Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Table A8: Main estimation results by explanatory category -'Personal norms' (1) est1 Good to reduce fuel subsidy Understanding of subsidy granted 0.950 (0.085)

Observations 13532
Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Robust standard errors clustered at the enumeration area in parentheses. Region dummies are included in models. We report the estimated coefficients and standard errors transformed to odds ratios. Results for control variables in models are omitted. *p < 0.10, ** p < 0.05, *** p < 0.01 Table A15: Factors that influence support for subsidy reform: Logistic regression estimations results using a binary indicator for big impact of 2016 fuel price increase. Big impact of 2016 fuel price increase (binary) is coded as 1 if a response is either big (4) or very big impact (5) to the question, "Size of impact of 2016 fuel price increase." The results for control variables are omitted in the table. APP-12