Energy Subsidies and Energy Consumption: A Cross-Country Analysis

Joshua Charap, Arthur Ribeiro da Silva and Pedro Rodriguez

No 2013/112, IMF Working Papers from International Monetary Fund

Abstract: The economic and environmental implications of energy subsidies have received renewed attention from policymakers and economists in recent years. Nevertheless there remains significant uncertainty regarding the magnitude of the impact of energy subsidies on energy consumption. In this paper we analyze a panel of cross-country data to explore the responsiveness of energy consumption to changes in energy prices and the implications of our findings for the debate on energy subsidy reform. Our findings indicate a long-term price elasticity of energy demand between -0.3 and -0.5, which suggests that countries can reap significant long-term benefits from the reform of energy subsidies. Our findings also indicate that short-term gains from subsidy reform are likely to be much smaller, which suggests the need for either a gradual approach to subsidy reform or for more generous safety nets in the short term.

Keywords: WP; elasticity; price; estimate; Energy; subsidy; price elasticity; income elasticity; elasticity of energy demand; interaction terms; energy consumption; price elasticities in the range; OLS estimation; elasticity estimate; price difference; estimation strategy; Consumption; Energy prices; Fuel prices; Demand elasticity; Middle East (search for similar items in EconPapers)
Pages: 20
Date: 2013-05-16
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Citations: View citations in EconPapers (6)

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