A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy
AbstractWe construct a dynamic general equilibrium model to analyze the effects of large energy subsidies in a small open economy. 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. In response to a 15 percent cut in energy subsidies, GDP may fall as less energy is used in production. Excess energy is exported and capital imports fall. Welfare in consumption equivalent terms can rise by up to 0.6 percent of GDP. Gains in output can be realized only if the government re-invests into infrastructure.
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Bibliographic InfoPaper provided by Towson University, Department of Economics in its series Working Papers with number 2013-02.
Length: 40 pages
Date of creation: Feb 2013
Date of revision: Feb 2013
Energy subsidies; fiscal policy reform; public sector reform; growth.;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
- J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-11 (All new papers)
- NEP-DGE-2013-05-11 (Dynamic General Equilibrium)
- NEP-ENE-2013-05-11 (Energy Economics)
- NEP-MAC-2013-05-11 (Macroeconomics)
- NEP-PBE-2013-05-11 (Public Economics)
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