South Africa's Fuel Price Subsidies - A Close Analysis Shows They Don't Reduce Poverty

Political parties and some economists argue that government levies are artificially inflating fuel prices, while government's recent responses are temporary and inadequate. Therefore, a long-term and workable solution would be to deregulate fuel prices.

In the other two experiments the government was assumed to intervene and compensate for oil price increases through a price-subsidy mechanism based on different financing regimes. We referred to these as price-setting scenarios. The results should be taken as giving a short-term perspective of the impact of recent oil price shocks. They reveal that the different scenarios or government policy responses to high fuel prices would increase the measures of poverty. These are:the poverty gap - the amount of money needed to bring poor people to the food poverty line or to help them secure the necessities for survivalUnder the floating-price scenario, the poverty headcount, gap and severity increased by 1.2%, 1.5%, and 1.

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