Democracy, Autocracy and the Urban Bias: Evidence from Petroleum Subsidies

Abstract

Petroleum subsidies are economically costly and environmentally destructive. Autocracies tend to offer higher subsidies for petroleum products than do democracies. Why? This study uses a global dataset of gasoline prices in developing countries for the years 2003–9 to show that the autocratic subsidy premium stems from countries where much of the population lives in small cities. Urban riots are a major threat to autocratic political survival, and high fuel prices cause social unrest. In large cities, autocrats can use public transportation to mitigate the effects of high fuel prices, but this strategy is not practical in small cities. Therefore, autocratic rulers offer high petroleum subsidies if they have large urban populations living in small cities. These findings suggest that the exact nature of urbanization has a critical effect on the political calculus of leaders and on policy outcomes.