Research under review

Why do countries worldwide still heavily subsidize fossil fuels despite the accelerating threat of climate change? While most answers so far are exclusively about the domestic complications, I argue that the slow-paced phase-out of fossil fuel subsidies is partly caused by path interdependence, by which countries follow one another too often to move sluggishly, to do nothing, and even to roll back. Underpinning this contagious climate inaction is bounded rationality and risk aversion, with indecisive policy makers turning to their counterparts elsewhere when facing the high-stakes subsidy reform. In particular, this regressive policy emulation asserts more influence between the neighboring or linguistically proximate countries owing to the heuristics that bias people in searching and utilizing information from overseas. Using the data from 29 OECD countries over the past three decades on revising the gasoline tax—a direct measure to end the most common implicit subsidy regime for fossil fuels, spatial econometric analysis lends strong and robust support to my argument. Beyond climate and energy politics, my research also sheds light on the broad literature of diffusion and the political economy of subsidies in general.