Fiscal Trade-Offs and Poverty Outcomes: The Impact of Fuel Subsidy Removal on Household Welfare in Nigeria

Abstract

This study investigates the impact of fuel subsidy removal on household welfare in Nigeria, focusing on its effects on poverty, income inequality, and multidimensional poverty from 2000 to 2024. The aim is to assess both short-term and long-term welfare impacts of subsidy reforms. The study adopts a quantitative research design, utilizing secondary data from the National Bureau of Statistics, Central Bank of Nigeria, and international organizations. Difference-in-Differences (DiD) and panel regression models are applied to examine the causal effects of subsidy removal on poverty outcomes, controlling for inflation, GDP growth, and exchange rates. The findings reveal that the removal of fuel subsidies significantly increases poverty rates, with the post-subsidy period showing a 12% rise in poverty rates, particularly affecting rural households. This result is aligned with global studies in countries like Venezuela, Egypt, and Algeria, underscoring the inflationary pressures and higher living costs resulting from subsidy cuts. The study concludes that while fiscal savings from subsidy removal are evident, they are overshadowed by adverse welfare outcomes, particularly for vulnerable populations. Therefore, the study recommends targeted social protection programs, gradual subsidy reductions, infrastructure investment, and public awareness campaigns to mitigate the negative impacts, especially for rural households.