A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy

Gerhard Glomm () and Juergen Jung

No 2013-02, Working Papers from Towson University, Department of Economics

Abstract: We construct a dynamic model of a small open economy to analyze the effects of large energy subsidies. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. Our main results for a 15 percent cut in energy subsidies are: (i) Steady state GDP drops in most of our experiments as less energy is used in production. (ii) Steady state consumption rises in most of our experiments. (iii) Welfare can rise by as much as 0.6 percent in consumption equivalent terms. (iv) The largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment.

Keywords: Energy subsidies; fiscal policy reform; public sector reform; growth. (search for similar items in EconPapers)
JEL-codes: E21 E63 H55 J26 J45 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-02, Revised 2014-10
New Economics Papers: this item is included in nep-dge, nep-ene, nep-mac and nep-pbe
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http://webapps.towson.edu/cbe/economics/workingpapers/2010-17.pdf First version, 2013 (application/pdf)

Related works:
Journal Article: A MACROECONOMIC ANALYSIS OF ENERGY SUBSIDIES IN A SMALL OPEN ECONOMY (2015)
Working Paper: A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tow:wpaper:2013-02

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