rate for politicians. In particular, when many voters have cars, a large amount of gasoline subsidy may be required to sway voters in their desired direction.

Drazen and Eslava (2009) argue that political budget cycles change the composition rather than the level of government expenditures. They test their claims on data of local public finances of municipalities in Colombia and find evidence in favor of electoral manipulation of the budget by shifting public spending towards the goods voters as a whole prefer in the attempt to seduce voters to vote for the incumbent. They also conclude that voters penalize the incumbent party for running large government deficits before elections and that voters reward the incumbent party for increasing the amount of targeted spending that is attractive to the voter. Another interesting observation of Drazen and Eslava (2009) is that spending of visible development projects like physical-infrastructure spending (roads, power- and water plants) expand significantly before elections while less visible spending category – interest payments, transfers to retirees, payments to temporary workers – contract.

# _2.4 Economic factors behind fossil-fuel pricing_

Many traditional economic arguments also lie behind energy subsidies or taxation. A key factor is whether the country is a net exporter or importer of the type of energy that can be subsidized or taxed; or energy more generally. Fossil fuel exporting country governments may see less of a reason to resist subsidizing fuels, for fiscal or energy security reasons, in particular when such revenues are large; and they may be subject to more pressure to provide energy subsidies.<sup>7</sup> Similar explanations may follow from either a country’s debt or energy security position. A high level of debt, or an insecure energy supply, may lead the country to reduce its fuel consumption by eliminating subsidies to fuels, or taxing it. There are also good reasons for many countries to tax its motor fuels when the (national average) level of negative externalities from motor vehicle traffic is high. Thus we might find lower than otherwise subsidy levels (or higher tax levels) for motor fuels such as gasoline and diesel, where externality costs of motor vehicle use are larger. Also here one however needs to be careful; a high externality cost level may namely also follow from high motor vehicle use which may in turn follow from low fuel prices. This implies that such externality costs may be endogenous, and thus a result of, and not a reason for, a particular policy for subsidizing or taxing fuels.

The relationship between the volume of motor fuel consumption on motor fuel subsidies (or taxes) is a similarly complicated one, as both variables are likely to be determined simultaneously in a fuller, appropriately specified, model. Considering however the partial effect of fuel consumption on fuel price or subsidy, we may think of two countervailing forces; see Strand (2012). On the one hand, a high level of gasoline or diesel consumption tends to indicate a high interest in or political attention to fuel subsidies, thus making them attractive to government. On the other hand, a large fuel volume makes a high subsidy level difficult to sustain because of the government budget constraint (at least in countries that are not major

> 7 Strand (2010b) provides a model which seeks to explain fuel subsidies by energy exporters, based on fuel exporters’ market power (domestic fuel consumption is stimulated through subsidies, which reduces exporters’ supply to export markets thus leading to higher global fuel prices).

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