Distributional impact of phasing out residential electricity subsidies on household welfare

Rubina Ilyas, Khadim Hussain, Mehreen Zaid Ullah and Jianhong Xue

Energy Policy, 2022, vol. 163, issue C

Abstract: One of the pertinent concerns that Pakistan is facing nowadays is the ever-increasing demand for energy. The government of Pakistan has been reducing subsidies on commercial fuels due to mounting fiscal burden and fluctuating oil prices. This study analyzes the distributional impact of phasing out residential electricity subsidies on household welfare. The direct, as well as indirect effects of phasing out electricity subsidies, have been estimated. The results suggest that a rise in the prices of electricity causes a significant decrease in the real expenditure of households in all expenditure quintiles. However, the decline is greater for the relatively affluent households than the relatively poor households implying that the benefit of introducing electricity subsidies would be regressive. The results also show that the indirect effect of subsidy removal is far greater as compared to the direct effect. Electricity prices rise due to subsidy removal would increase the price of other goods, which will ultimately result in cost-driven inflation with some lags. Hence, the government must focus on the indirect subsidy reform effects accompanied by a more cost-effective policy to protect the poor.

Keywords: Electricity consumption; Electricity subsidies; Household welfare; Direct and Indirect welfare Effects; Price-shifting model; Pakistan (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301421522000507
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:163:y:2022:i:c:s0301421522000507

DOI: 10.1016/j.enpol.2022.112825

Access Statistics for this article

Energy Policy is currently edited by N. France

More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().