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Fuel subsidies lead to environmental damage through inefficiencies in energy use, they are a burden for public budget and moreover they are regressive, usually benefiting the already better off households. Despite, these negative qualities, energy subsidies are still implemented throughout the World. Post-tax energy subsidies in the World are estimated to be 5.3 trillion USD while fuel subsidies alone, are estimated to be 1.5 trillion USD, making up 1.8 percent of the global GDP in 2015. Reallocation of fuel subsidies can be an important tool for creating fiscal space for child grants in many of these countries. This paper specifically focuses on the case of Madagascar¡¯s fuel subsidy reform. In Madagascar, the size of the fuel subsidies as of 2014 are estimated in this paper to be around 80 million. In June 2014, the government decided to eliminate fuel subsidies gradually in and the analysis in this paper was prepared to provide timely input to the policy discussion around fuel subsidy reform in Madagascar. The paper builds an ex-ante simulation model using Madagascar¡¯s ENSOMD 2012 data set and looks at (i) different scenarios of price hikes and the impact on the poor and (ii) models the targeting and benefit incidence of universal cash transfer for children with the budget reallocated from regressive fuel subsidy spending. The benefit incidence analysis shows that in Madagascar, fuel subsidies are highly regressive. Gasoline and diesel consumption is very rare in the households in the bottom 60 percent while kerosene is commonly consumed by households from all income groups. We find that poor households are affected the least if kerosene price remain unchanged. Nevertheless, different price increase scenarios including a change in the price of kerosene do not increase poverty by more than 1 percentage points. Reallocating the gains from the fuel subsidy reform to a universal child grant (for children ages 0-4 or 0-14) is estimated to decrease poverty rates between 2.4 to 4.6 percentage points. Read less