Abstract
Sectoral interests play an important role in distributive politics, but their influence is difficult to measure. We compare the effect of international oil prices on subsidies for domestic gasoline and diesel consumption. Because diesel is used by a smaller number of organized agricultural and transportation interests, they are more capable of collective action than the dispersed beneficiaries of gasoline subsidies. The conventional wisdom holds that sectoral interests could mobilize to stop reform (e.g., price increases, deregulation). Challenging this view, we consider the possibility that sectoral interests promote reform by facilitating the targeted allocation of compensation and exemptions. An empirical analysis of gasoline and diesel prices, 1991-2012, strongly supports the second hypothesis: diesel prices respond to international oil prices more strongly than do gasoline prices. Quantitative tests and case studies allow us to explore causal mechanisms, verify that the gasoline-diesel difference is related to actual policy reforms, and reject alternative explanations.
