Monday, December 27, 2010


The Bolivian government drastically increased taxes on fuel, by over 70%.  It did so for rational capitalist reasons, namely that higher prices in neighboring countries had fostered a thriving black market.  However, the official reasoning leaves something to be desired:

"We can no longer subsidize either smugglers or the powerful who have five or six cars.  What we want to do is to use the money for fuel subsidy for the benefit of the Bolivians, for the neediest," he argued.

It is hard to justify a regressive tax by explaining how it will help the poor.  Bolivians themselves know a regressive tax when they see one, and are protesting the "gasolinazo."

It is good that the Bolivian government recognizes the negative consequences of a well-intentioned law and does not simply stick to it.  Nonetheless, without some sort of cushion the tax hike will hurt the poor the hardest, and Evo Morales will take a political hit (though he was conveniently in Venezuela at the time of the announcement).  The "powerful who have five or six cars" will still do just fine.


Randy Paul 4:17 PM  

Precisely. For the same reason that inflation is so devastating for the poor, but the rich can adjust to it relatively easily.

Chris Lawrence 12:19 AM  

Repealing a subsidy isn't the same thing as imposing a tax. And in a country where the truly poor can't even afford cars, I'm not sure fuel taxes are as regressive a tax as they would be in the developed world. Tellingly (at least if the BBC account is to be believed) the complaints are coming from transportation workers and employers who are getting kicked off the gravy train.

If Evo can redirect the money being spent to subsidize fuel to programs that more directly address inequality (or at least avoids cuts in social spending by reducing the subsidy), it seems like a good plan over the medium or long term.

A more snarky interpretation would be that the Bolivarian Alternative isn't quite working out for the Bolivians at least.

Anonymous,  12:42 AM  

The consequences of 100% increase in fuel prices to avoid smuggling has caused everything in Bolivia to double or triple in price.

The man behind this move is the vice president who lied adamantly Saturday when he stated this would not happen. Yet a day later decrees this tax.

Sunday, no gasoline could be found. So it was obvious that gasoline station owners had a heads up on the deal.

True, the rich will adapt easily. The poor will see their expenses doubled or tripled. This has cause a huge rift with Morales support base.

If Evo is able to make this adjustment he will also hurt Bolivian exports extensively. This is the first foolish move done by the vicepresident who failed to understand the implications of his move.

Bolivians now will move into a communist status where gasoline, food and construction materials will be assign based on coupons. Russia and China proved this to be extremely noneffective for their development and based on this, fact, the vice president has effectively betrayed his country. On these grounds he can easily be processed.

At the very least, it would be wise to contest the vicepresindent's plan and use the laws he brought to the table to contest his capability to keep his post.

Challenging him now is an easy task and would undermine Morales extensively.

Tambopaxi 7:40 AM  

What's not clear from the BBC account is what this move will mean for the cost of bus transportation.

Poor people do use taxis, but not nearly as often as they use the buses. Taxi tariffs will go up and that will hurt, but if bus prices go up (and the since the cost base is small,increases could be very large, percentage-wise), the economic and political pain will be excruciating, and that's where the serious unrest comes in.

Still and all, I'd had the impression that Morales was doing a good job of managing finances; these subsidy cuts will press the poor and there will be inflationary impact on food, services, etc. The GOB says that they'll use the subsidy funds saved to finance social programs, but which programs are so important - and which will be so effective - as to ameliorate the increased costs of basic needs like transportation and food?

Greg Weeks 9:16 AM  

I would say that repealing a subsidy is indistinguishable from imposing (or raising) a tax--the government is intentionally pushing a price higher for whatever reason. So you can use "regressive subsidy elimination" but "tax hike" is more clear. Further, raising fuel prices will raise the price of anything requiring transportation, including food. So it will hit the poor disproportionately.

Wildleaf 2:04 PM

"Economically speaking, it does make sense on a few levels. Firstly, Bolivia is a net exporter of natgas but produces little liquid hydrocarbons itself and is a net importer of diesel, gasolines etc. The subsidy that was being paid by the government was a clear net loser for the treasury. Also, the country runs on public transport (private car ownership is low), a medium that can absorb a huge percentage increase more easily. Thirdly, this subsidy cut, somewhat strangely, does appeal to the Socialist leanings of the Morales administration because a fuel subsidy is in effect a subsidy for those who can afford a car etc (the same 'tax break for the rich' argument is often used as a critique of Venezuela's heavily discounted fuel)...."

"...UPDATE: An example of US analytical mediocrity: Of all the quotes on this issue that "academic" Greg Weeks could have chosen, he goes for the one that makes himself look like a total dumbass. A better example of total non-comprehension of South America would be difficult to come by."

I agree with the humble scribe at IKN on his analysis. Forgive his jab, he's from Peru, cultural differences.

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