IDEAS home Printed from https://ideas.repec.org/a/eco/journ2/2019-01-29.html
   My bibliography  Save this article

Welfare and Distributional Effects of the Energy Subsidy Reform in the Gulf Cooperation Council Countries: The Case of Sultanate of Oman

Author

Listed:
  • Houcine Boughanmi

    (Department of Natural Resource Economics, Sultan Qaboos University, Oman,)

  • Muhammad Aamir Khan

    (Department of Management Sciences, COMSATS Institute of Information Technology, Islamabad. Pakistan)

Abstract

The Gulf Cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014. The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure. Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators. The study uses an extended version of the general equilibrium GTAP Model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman. Results indicate the effects of reducing the energy subsidy by 50% would lead to a slight increase in the GDP by 0.62% , an increase in government saving by 2.9 billion US $ and a reduction in household welfare by about 3% due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.

Suggested Citation

  • Houcine Boughanmi & Muhammad Aamir Khan, 2019. "Welfare and Distributional Effects of the Energy Subsidy Reform in the Gulf Cooperation Council Countries: The Case of Sultanate of Oman," International Journal of Energy Economics and Policy, Econjournals, vol. 9(1), pages 228-236.
    • Handle: RePEc:eco:journ2:2019-01-29
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijeep/article/download/7142/4114
    Download Restriction: no
    File URL: https://www.econjournals.com/index.php/ijeep/article/view/7142/4114
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mr. David Coady & Ian W.H. Parry & Louis Sears & Baoping Shang, 2015. "How Large Are Global Energy Subsidies?," IMF Working Papers 2015/105, International Monetary Fund.
    2. Mr. Carlo A Sdralevich & Miss Randa Sab & Mr. Younes Zouhar & Ms. Giorgia Albertin, 2014. "Subsidy Reform in the Middle East and North Africa: Recent Progress and Challenges Ahead," IMF Departmental Papers / Policy Papers 2014/008, International Monetary Fund.
    3. Atkinson,Anthony Barnes & Micklewright,John, 1992. "Economic Transformation in Eastern Europe and the Distribution of Income," Cambridge Books, Cambridge University Press, number 9780521438827, January.
    4. Dartanto, Teguh, 2013. "Reducing fuel subsidies and the implication on fiscal balance and poverty in Indonesia: A simulation analysis," Energy Policy, Elsevier, vol. 58(C), pages 117-134.
    5. Griffin,Peter & Laursen,Thomas Blatt & Robertson,James W., 2016. "Egypt : guiding reform of energy subsidies long-term," Policy Research Working Paper Series 7571, The World Bank.
    6. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    7. Rahul Anand & Mr. David Coady & Mr. Adil Mohommad & Mr. Vimal V Thakoor & Mr. James P Walsh, 2013. "The Fiscal and Welfare Impacts of Reforming Fuel Subsidies in India," IMF Working Papers 2013/128, International Monetary Fund.
    8. Siddig, Khalid & Aguiar, Angel & Grethe, Harald & Minor, Peter & Walmsley, Terrie, 2014. "Impacts of removing fuel import subsidies in Nigeria on poverty," Energy Policy, Elsevier, vol. 69(C), pages 165-178.
    9. Saeed Solaymani & Fatimah Kari & Roza Hazly Zakaria, 2014. "Evaluating the Role of Subsidy Reform in Addressing Poverty Levels in Malaysia: A CGE Poverty Framework," Journal of Development Studies, Taylor & Francis Journals, vol. 50(4), pages 556-569, April.
    10. Siddig,Khalid & Minor,Peter J. & Grethe,Harald & Aguiar,Angel & Walmsley,Terrie Louise, 2015. "Impacts on poverty of removing fuel import subsidies in Nigeria," Policy Research Working Paper Series 7376, The World Bank.
    11. Vagliasindi, Maria, 2012. "Implementing energy subsidy reforms : an overview of the key issues," Policy Research Working Paper Series 6122, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ozgur, Onder & Aydin, Levent & Karagol, Erdal Tanas & Ozbugday, Fatih Cemil, 2021. "The fuel price pass-through in Turkey: The case study of motor fuel price subsidy system," Energy, Elsevier, vol. 226(C).
    2. Muhammad Aamir Khan & Alishba Tahir & Nabila Khurshid & Muhammad Iftikhar ul Husnain & Mukhtar Ahmed & Houcine Boughanmi, 2020. "Economic Effects of Climate Change-Induced Loss of Agricultural Production by 2050: A Case Study of Pakistan," Sustainability, MDPI, vol. 12(3), pages 1-17, February.
    3. Husnain, Muhammad Iftikhar ul & Nasrullah, Nasrullah & Khan, Muhammad Aamir & Banerjee, Suvajit, 2021. "Scrutiny of income related drivers of energy poverty: A global perspective," Energy Policy, Elsevier, vol. 157(C).
    4. Bhuvandas, Dhanyashree & Gundimeda, Haripriya, 2020. "Welfare impacts of transport fuel price changes on Indian households: An application of LA-AIDS model," Energy Policy, Elsevier, vol. 144(C).
    5. Saeed Solaymani, 2021. "Energy subsidy reform evaluation research – reviews in Iran," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 11(3), pages 520-538, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jun Rentschler & Morgan Bazilian, 2017. "Policy Monitor—Principles for Designing Effective Fossil Fuel Subsidy Reforms," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 138-155.
    2. Cecile Couharde & Sara Mouhoud, 2020. "Fossil Fuel Subsidies, Income Inequality, And Poverty: Evidence From Developing Countries," Journal of Economic Surveys, Wiley Blackwell, vol. 34(5), pages 981-1006, December.
    3. Acharya, Rajesh H. & Sadath, Anver C., 2017. "Implications of energy subsidy reform in India," Energy Policy, Elsevier, vol. 102(C), pages 453-462.
    4. Bah, Muhammad Maladoh & Saari, M. Yusof, 2020. "Quantifying the impacts of energy price reform on living expenses in Saudi Arabia," Energy Policy, Elsevier, vol. 139(C).
    5. Saeed Solaymani, 2016. "Impacts of energy subsidy reform on poverty and income inequality in Malaysia," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(6), pages 2707-2723, November.
    6. Peltovuori, Ville, 2017. "Fossil fuel subsidies in the Pacific island context: Analysis of the case of Kiribati," Energy Policy, Elsevier, vol. 111(C), pages 102-110.
    7. Boudekhdekh, Karim, 2022. "A comparative analysis of energy subsidy in the MENA region," MPRA Paper 115275, University Library of Munich, Germany.
    8. Jun E Rentschler & Nobuhiro Hosoe, 2017. "Illicit dealings: Fossil fuel subsidy reforms and the role of tax evasion and smuggling," GRIPS Discussion Papers 17-05, National Graduate Institute for Policy Studies.
    9. Aiman Albatayneh & Adel Juaidi & Francisco Manzano-Agugliaro, 2023. "The Negative Impact of Electrical Energy Subsidies on the Energy Consumption—Case Study from Jordan," Energies, MDPI, vol. 16(2), pages 1-17, January.
    10. Omotosho, Babatunde S., 2020. "Oil price shocks, fuel subsidies and macroeconomic (in)stability in Nigeria," MPRA Paper 105464, University Library of Munich, Germany.
    11. Rentschler, Jun, 2016. "Incidence and impact: The regional variation of poverty effects due to fossil fuel subsidy reform," Energy Policy, Elsevier, vol. 96(C), pages 491-503.
    12. Khan, Aamir & Walmsley, Terrie & Mukhopadhyay, Kakali, 2019. "Trade Liberalization and Income Inequality: The Case for Pakistan," Conference papers 333125, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    13. Erwin Corong & Thomas Hertel & Robert McDougall & Marinos Tsigas & Dominique van der Mensbrugghe, 2017. "The Standard GTAP Model, version 7," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 2(1), pages 1-119, June.
    14. Fahman Fathurrahman & Bora Kat & Uğur Soytaṣ, 2017. "Simulating Indonesian fuel subsidy reform: a social accounting matrix analysis," Annals of Operations Research, Springer, vol. 255(1), pages 591-615, August.
    15. Muhammad Aamir Khan & Alishba Tahir & Nabila Khurshid & Muhammad Iftikhar ul Husnain & Mukhtar Ahmed & Houcine Boughanmi, 2020. "Economic Effects of Climate Change-Induced Loss of Agricultural Production by 2050: A Case Study of Pakistan," Sustainability, MDPI, vol. 12(3), pages 1-17, February.
    16. Herbert W. V. Hasudungan & Sulthon S. Sabaruddin, 2016. "The Impact of Fiscal Reform on Indonesian Macroeconomy: A CGE Framework," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 8(3), pages 181-202, September.
    17. Khalid, Syed Adnan & Salman, Verda, 2020. "“Welfare impact of electricity subsidy reforms in Pakistan: A micro model study”," Energy Policy, Elsevier, vol. 137(C).
    18. Muhammad Shahzad Iqbal, Sofia Anwar, Kakali Mukhopadhay, Muhammad Aamir Khan, 2017. "GSP Plus Status and Income Distribution: A CGE Model for Pakistan," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 4(1), pages 27-53, March.
    19. Henseler, Martin & Maisonnave, Helene, 2018. "Low world oil prices: A chance to reform fuel subsidies and promote public transport? A case study for South Africa," Transportation Research Part A: Policy and Practice, Elsevier, vol. 108(C), pages 45-62.
    20. Siddig, Khalid & Aguiar, Angel & Grethe, Harald & Minor, Peter & Walmsley, Terrie, 2014. "Impacts of removing fuel import subsidies in Nigeria on poverty," Energy Policy, Elsevier, vol. 69(C), pages 165-178.

    More about this item

    Keywords

    Energy subsidy; MyGATP; Oman;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D6 - Microeconomics - - Welfare Economics
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ2:2019-01-29. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.