size impact insignificant in most cases. A country that is more open than other nations experiences lower energy prices and hence more energy subsidies ( _Opennessi,t_ ). One interpretation of this result could be that governments attempt to shield off their citizens from world market influences by energy subsidies. Another factor may be tax competition which may hold back very open countries from taxing fuels.

_Road gas consumption per million inhabitantsi,t-1_ appears to affect gasoline prices negatively, so that gasoline subsidies are increased (or taxes reduced) when consumption is greater. This effect is highly significant also in the 2SLS estimation where simultaneity between the two variables is corrected for by instrumenting for the gasoline consumption level. It suggests that political leaders subsidize gasoline by more when gasoline consumption is larger; which is likely to represent a combination of a larger group of car owners, and larger gasoline consumption per car. A factor here is clearly the former: when the number of voters using gasoline and having an interest in subsidizing it, the political effect of subsidies is greater. This effect then seems to overshadow a possible countervailing effect, stressed by Strand (2012), whereby a larger gasoline volume to be subsidized could make subsidies more expensive for government and thus, potentially, less attractive as a fiscal measure. Note that, in regressions (3.4) and (3.6), the first stage regression includes the number of passenger cars per inhabitant as a determinant of the road gasoline consumption per inhabitant. The number of passenger cars in our dataset was only available for a restricted number of (mostly higher income) countries. This explains why the number of observations is substantially reduced. In regressions (3.3) and (3.5) the first stage regression was done without the passenger car variable. In Table 2b we can observe that in all regressions the _Road diesel consumption per million inhabitantsi,t_ is insignificant except when the number of passenger cars per inhabitant is used in the first stage of the 2SLS regressions (regressions (3.10) and (3.12).

A higher level of _public health expenditures as % of GDPi,t-1_ provided by the central government as a measure of (non-targeted) public goods provision in the previous year, is associated with higher fossil fuel prices and ceteris paribus to less energy subsidies. This effect is strongly positive in democracies. The correction for non-democracies is downwards, which means that the effect is smaller (but still positive) in non-democracies.<sup>19</sup> The causal relationship is less clear. Central government public health expenditures are clearly a component of public expenditures. (Well-run) democratic countries are likely to have both good public health service systems, and low rates of fuel subsidies or, indeed, often substantial fuel taxes. This is in line with the picture presented by Figures 1 – 4 as well as the theoretical notions presented in section 2, i.e. democratic countries have less incentive than non-democratic nations to concentrate on targeted spending as a voters “buying” mechanism.

> 19 A simple t-test shows that the estimates for the two variables are significantly different from each other. We also used the sum of public health and public education spending as % of GDP and this leads to the same conclusion although the estimated coefficients for non-democracies become insignificant.

22