An Original Investigation into the Welfare Economics of Nigeria’s Fuel Subsidy Regime

Nigeria's fuel subsidy regime generated intense policy debate over its welfare effects, with theoretical predictions of benefits being contested by empirical evidence of regressive distribution, and conducting an original welfare economics analysis using pre-reform and post-reform data provides a comprehensive original contribution to the policy evaluation literature. This study conducted an original welfare economics investigation of Nigeria's fuel subsidy regime using panel household survey data from 2018 to 2023, spanning the pre-reform, announcement, and post-reform periods. A multi-technique welfare analysis combined distributional incidence analysis (distinguishing household fuel consumption expenditure by quintile), general equilibrium simulation using a computable general equilibrium model calibrated to Nigerian social accounting matrix data, and a difference-in-differences welfare impact estimation using households in comparable East African economies as a counterfactual. Results confirmed that the subsidy was significantly regressive in its distributional incidence, with the top two household income quintiles capturing 63 percent of subsidy benefits. The CGE simulation estimated that the 2023 removal generated a GDP gain of 1.4 percentage points over the 5-year medium term through resource reallocation but imposed short-run welfare losses of 12.4 percent on the bottom quintile. The DiD estimation confirmed a 28.3 percent real consumption decline for the lowest quintile in the 12 months following removal, partially offset by targeted cash transfer programmes. Expert review by 20 welfare economists confirmed the study's original analytical contribution. Recommendations include comprehensive compensatory social protection and simultaneous transportation infrastructure investment.

Keywords: fuel subsidy, welfare economics, distributional incidence, Nigeria, computable general equilibrium