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Distributional impact analysis of the energy price reform in Turkey

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  • Zhang, Fan
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    Abstract

    A pricing reform in Turkey increased the residential electricity tariff by more than 50 percent in 2008. The reform, aimed at encouraging energy efficiency and private investment, sparked considerable policy debate about its potential impact on household welfare. This paper estimates a short-run residential electricity demand function for evaluating the distributional consequences of the tariff reform. The model allows heterogeneity in household price sensitivities and is estimated using a national sample of 18,671 Turkish households. The model also addresses the common problem of missing data in survey research. The study reveals a highly skewed distribution of price elasticities in the population, with rich households three times more responsive in adjusting consumption to price changes than the poor. This is most likely because the poor are close to their minimum electricity consumption levels and have fewer coping options. In addition, the welfare loss of the poorest quintile -- measured by the consumer surplus change as a percentage of income -- is 2.9 times of that of the wealthiest.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5831.

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    Date of creation: 01 Oct 2011
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    Handle: RePEc:wbk:wbrwps:5831

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    Keywords: Energy Production and Transportation; Climate Change Economics; Markets and Market Access; Economic Theory&Research; Environment and Energy Efficiency;

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    1. Bauwens, Luc & Fiebig, Denzil G & Steel, Mark F J, 1994. "Estimating End-Use Demand: A Bayesian Approach," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(2), pages 221-31, April.
    2. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
    3. Nesbakken, Runa, 1999. "Price sensitivity of residential energy consumption in Norway," Energy Economics, Elsevier, vol. 21(6), pages 493-515, December.
    4. World Bank, 2009. "Adapting to Climate Change in Europe and Central Asia," World Bank Other Operational Studies 3052, The World Bank.
    5. Takashi Yamagata & Chris Orme, 2005. "On Testing Sample Selection Bias Under the Multicollinearity Problem," Econometric Reviews, Taylor & Francis Journals, vol. 24(4), pages 467-481.
    6. Bernard, J.T. & Bolduc, D. & Belanger, D., 1993. "Quebec Residential Electricity Demand: A Microeconometric Approach," Papers 9334, Laval - Recherche en Energie.
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    8. Petersen, H. Craig, 1982. "Electricity Consumption In Rural Vs. Urban Areas," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(01), July.
    9. Michael Parti & Cynthia Parti, 1980. "The Total and Appliance-Specific Conditional Demand for Electricity in the Household Sector," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 309-321, Spring.
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    Cited by:
    1. World Bank, 2012. "Europe and Central Asia Balancing Act : Cutting Subsidies, Protecting Affordability, and Investing in the Energy Sector in Eastern Europe and Central Asia Region," World Bank Other Operational Studies 11910, The World Bank.

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