IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v142y2020ics0301421520302834.html
   My bibliography  Save this article

Economics of energy subsidy reforms in Bangladesh

Author

Listed:
  • Timilsina, Govinda R.
  • Pargal, Sheoli

Abstract

As in many countries around the world, subsidies to energy in Bangladesh impose a significant fiscal burden, with benefits that disproportionately accrue to high-income households. Using a computable general equilibrium model, this study investigates the economy-wide impacts of the removal of direct subsidies in the electricity sector and indirect subsidy in natural gas in Bangladesh. The study finds that the removal of energy subsidies would be beneficial to the economy and would increase GDP. The magnitude of the economic impact depends on how the budgetary savings from the removal of electricity subsidy and the increased revenues due to the removal of indirect subsidies to natural gas are reallocated to the economy. Recycling the savings (or the new revenues) to fund investment would benefit the country most, followed by the case of utilizing them to fund cuts in income taxes, and finally to fund cuts in indirect taxes. While the reallocation of budgetary savings to households through lump-sum transfers is found inferior to other recycling options considered, it could be the preferred from the distributional perspective. However, further analysis is needed to confirm this.

Suggested Citation

  • Timilsina, Govinda R. & Pargal, Sheoli, 2020. "Economics of energy subsidy reforms in Bangladesh," Energy Policy, Elsevier, vol. 142(C).
    • Handle: RePEc:eee:enepol:v:142:y:2020:i:c:s0301421520302834
    DOI: 10.1016/j.enpol.2020.111539
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421520302834
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2020.111539?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Breton, Michèle & Mirzapour, Hossein, 2016. "Welfare implication of reforming energy consumption subsidies," Energy Policy, Elsevier, vol. 98(C), pages 232-240.
    2. Elshennawy, Abeer, 2014. "The implications of phasing out energy subsidies in Egypt," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 855-866.
    3. 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.
    4. Roberton C. Williams III & Hal Gordon & Dallas Burtraw & Jared C. Carbone & Richard D. Morgenstern, 2015. "The Initial Incidence of a Carbon Tax Across Income Groups," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 195-214, March.
    5. Hong, Li & Liang, Dong & Di, Wang, 2013. "Economic and environmental gains of China's fossil energy subsidies reform: A rebound effect case study with EIMO model," Energy Policy, Elsevier, vol. 54(C), pages 335-342.
    6. McKitrick, Ross, 2017. "Global energy subsidies: An analytical taxonomy," Energy Policy, Elsevier, vol. 101(C), pages 379-385.
    7. Jiang, Zhujun & Tan, Jijun, 2013. "How the removal of energy subsidy affects general price in China: A study based on input–output model," Energy Policy, Elsevier, vol. 63(C), pages 599-606.
    8. Govinda Timilsina & Ram Shrestha, 2002. "General equilibrium analysis of economic and environmental effects of carbon tax in a developing country: case of Thailand," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 5(3), pages 179-211, September.
    9. Gerhard Glomm & Juergen Jung, 2015. "A Macroeconomic Analysis Of Energy Subsidies In A Small Open Economy," Economic Inquiry, Western Economic Association International, vol. 53(4), pages 1783-1806, October.
    10. Roberton C. Williams III & Hal Gordon & Dallas Burtraw & Jared C. Carbone & Richard D. Morgenstern, 2014. "The Initial Incidence of a Carbon Tax Across U.S. States," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(4), pages 807-830, December.
    11. Timilsina,Govinda R. & Pargal,Sheoli & Tsigas,Marinos E. & Sahin,Sebnem, 2018. "How Much Would Bangladesh Gain from the Removal of Subsidies on Electricity and Natural Gas ?," Policy Research Working Paper Series 8677, The World Bank.
    12. Arze del Granado, Francisco Javier & Coady, David & Gillingham, Robert, 2012. "The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries," World Development, Elsevier, vol. 40(11), pages 2234-2248.
    13. Jiang, Zhujun & Ouyang, Xiaoling & Huang, Guangxiao, 2015. "The distributional impacts of removing energy subsidies in China," China Economic Review, Elsevier, vol. 33(C), pages 111-122.
    14. Warwick J. McKibbin & Adele C. Morris & Peter J. Wilcoxen & Yiyong Cai, 2015. "Carbon Taxes and U.S. Fiscal Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 139-156, March.
    15. Gharibnavaz, Mohammad Reza & Waschik, Robert, 2015. "Food and energy subsidy reforms in Iran: A general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 726-741.
    16. Gelan, Ayele U., 2018. "Kuwait's energy subsidy reduction: Examining economic and CO2 emission effects with or without compensation," Energy Economics, Elsevier, vol. 71(C), pages 186-200.
    17. Solaymani, Saeed & Kari, Fatimah, 2014. "Impacts of energy subsidy reform on the Malaysian economy and transportation sector," Energy Policy, Elsevier, vol. 70(C), pages 115-125.
    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. Hosan, Shahadat & Rahman, Md Matiar & Karmaker, Shamal Chandra & Saha, Bidyut Baran, 2023. "Energy subsidies and energy technology innovation: Policies for polygeneration systems diffusion," Energy, Elsevier, vol. 267(C).
    2. Majidpour, Mehdi, 2022. "Policy lessons from the execution of fuel dual-pricing: Insights for fuel-subsidizing economies," Energy, Elsevier, vol. 247(C).
    3. Zahra Zarepour, 2022. "Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform," SN Business & Economics, Springer, vol. 2(10), pages 1-32, October.
    4. Aryanpur, Vahid & Fattahi, Mahshid & Mamipour, Siab & Ghahremani, Mahsa & Gallachóir, Brian Ó & Bazilian, Morgan D. & Glynn, James, 2022. "How energy subsidy reform can drive the Iranian power sector towards a low-carbon future," Energy Policy, Elsevier, vol. 169(C).
    5. Lee, Chien-Chiang & Hussain, Jafar & Chen, Yongxiu, 2022. "The optimal behavior of renewable energy resources and government's energy consumption subsidy design from the perspective of green technology implementation," Renewable Energy, Elsevier, vol. 195(C), pages 670-680.
    6. Fang Wu & Qi Hu & Chenming Zhu & Haitao Wang & Qian Yu & Huaping Sun, 2021. "New Structural Economic Analysis of Anti-COVID-19 Pandemic Model of BEST Region," IJERPH, MDPI, vol. 18(15), pages 1-23, July.
    7. Abdul Hasib Siddique & Sumaiya Tasnim & Fahim Shahriyar & Mehedi Hasan & Khalid Rashid, 2021. "Renewable Energy Sector in Bangladesh: The Current Scenario, Challenges and the Role of IoT in Building a Smart Distribution Grid," Energies, MDPI, vol. 14(16), pages 1-24, August.
    8. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
    9. Raza, Muhammad Yousaf & Lin, Boqiang, 2023. "Future outlook and influencing factors analysis of natural gas consumption in Bangladesh: An economic and policy perspectives," Energy Policy, Elsevier, vol. 173(C).

    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. 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.
    2. Xu, Shang & Zhang, Jun, 2023. "The welfare impacts of removing coal subsidies in rural China," Energy Economics, Elsevier, vol. 118(C).
    3. 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).
    4. Boudekhdekh, Karim, 2022. "A comparative analysis of energy subsidy in the MENA region," MPRA Paper 115275, University Library of Munich, Germany.
    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.
    6. 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.
    7. Zhan-Ming Chen, 2017. "Inventory and Distribution of Energy Subsidies of China," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    8. Ghosh, Probal P., 2022. "Impact of India's diesel subsidy reforms and pricing policy on growth and inflation," Energy Economics, Elsevier, vol. 113(C).
    9. Moz-Christofoletti, Maria Alice & Pereda, Paula Carvalho, 2021. "Distributional welfare and emission effects of energy tax policies in Brazil," Energy Economics, Elsevier, vol. 104(C).
    10. Acharya, Rajesh H. & Sadath, Anver C., 2017. "Implications of energy subsidy reform in India," Energy Policy, Elsevier, vol. 102(C), pages 453-462.
    11. Hosan, Shahadat & Rahman, Md Matiar & Karmaker, Shamal Chandra & Saha, Bidyut Baran, 2023. "Energy subsidies and energy technology innovation: Policies for polygeneration systems diffusion," Energy, Elsevier, vol. 267(C).
    12. Mr. Kangni R Kpodar & Ms. Stefania Fabrizio & Kodjovi M. Eklou, 2019. "Export Competitiveness - Fuel Price Nexus in Developing Countries: Real or False Concern?," IMF Working Papers 2019/025, International Monetary Fund.
    13. Sovacool, Benjamin K., 2017. "Reviewing, Reforming, and Rethinking Global Energy Subsidies: Towards a Political Economy Research Agenda," Ecological Economics, Elsevier, vol. 135(C), pages 150-163.
    14. Ilyas, Rubina & Hussain, Khadim & Ullah, Mehreen Zaid & Xue, Jianhong, 2022. "Distributional impact of phasing out residential electricity subsidies on household welfare," Energy Policy, Elsevier, vol. 163(C).
    15. 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.
    16. 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.
    17. Andrew Feltenstein & Biplab DattaAuthor-Email: bdatta2@student.gsu.edu, 2018. "Broad Based Subsidies or Targeted Transfers? An Analysis of the Electricity Subsidy in Pakistan," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1801, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    18. 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.
    19. Azad, Rohit & Chakraborty, Shouvik, 2020. "Green Growth and the Right to Energy in India," Energy Policy, Elsevier, vol. 141(C).
    20. Ian Coxhead & Corbett Grainger, 2018. "Fossil Fuel Subsidy Reform in the Developing World: Who Wins, Who Loses, and Why?," Asian Development Review, MIT Press, vol. 35(2), pages 180-203, September.

    More about this item

    Keywords

    Energy subsidy; Energy pricing reforms; General equilibrium modeling; Bangladesh;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    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:eee:enepol:v:142:y:2020:i:c:s0301421520302834. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    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.