Retail Electricity Subsidy in Vietnam: Review and Welfare Effect Under Reform

Truong Phuong Lam Do
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Truong Phuong Lam Do: Monash University

Warwick-Monash Economics Student Papers from Warwick Monash Economics Student Papers

Abstract: This paper examines the subsidy in the retail electricity market from two perspectives: cash transfer and quantity–based subsidy. The cash transfer is measured by three dimensions: benefit incidence, beneficiary incidence, and materiality; The quantity-based subsidy is established under the increasing block rate pricing. Overall, both subsidies are not efficient in supporting the poor. To improve the quantity–based subsidy, three proposals, along with the proposal from the company running the market are examined. The welfare effect under these plans is measured by the change in consumer surplus. Findings from this paper show that the reform should let the first blocks reflect the full marginal cost. Moreover, the price structure should be changed in both marginal price and the intervals. To mitigate the reduction in the quantity–based subsidy, the government should improve the cash transfer by reducing the extortion and targeting more efficiently, especially to poor households who live in rented houses.

Keywords: Vietnam retail electricity market; block rate pricing; welfare effect; electricity externalities; demand function; cash transfer; quantity-based subsidy JEL Classification: D12; D63; p Q41; Q48 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-ene, nep-reg, nep-sea and nep-tra
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