Effects of Removing Energy Subsidies and Implementing Carbon Taxes on Urban, Rural and Gender Welfare: Evidence from Mexico

Jorge Alberto Rosas Flores (), David Morillón Gálvez and Rodolfo Silva
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Jorge Alberto Rosas Flores: Instituto de Ingeniería UNAM, Circuito Escolar, Ciudad Universitaria, Ciudad de México 04510, Mexico
David Morillón Gálvez: Instituto de Ingeniería UNAM, Circuito Escolar, Ciudad Universitaria, Ciudad de México 04510, Mexico
Rodolfo Silva: Instituto de Ingeniería UNAM, Circuito Escolar, Ciudad Universitaria, Ciudad de México 04510, Mexico

Energies, 2024, vol. 17, issue 9, 1-17

Abstract: The demand for different energy goods and services is a fundamental component in a country’s economic structure for development. Understanding it is vital in designing economic policies, such as taxes, that can improve the welfare of the population. A comprehension of the distributional effects of elasticities and the application of them to simulate household responses to price changes, as well as a calculation of the welfare impacts on poor and rich households in Mexico, should inform policy design. This paper uses the Household Income and Expenditure Survey (ENIGH) from 1996 to 2018 to estimate the demand of Mexican households for fuels, specifically electricity, liquefied petroleum gas, and gasoline. A Quasi Ideal Quadratic Demand System (QUAIDS) is employed to analyse the effects of removing energy subsidies and introducing a carbon tax. The results indicate that welfare losses would be regressive concerning electricity price increases, while changes in gasoline prices would be progressive. Redistributing the tax revenues accrued by removing energy subsidies and imposing the carbon tax would have more progressive effects on the economy of Mexican households, with welfare gains of up to 350% for the poorest households in the case of electricity consumption taxes.

Keywords: Mexico; QUAIDS; subsidies; carbon tax; welfare (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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