Working Paper - 218 - Household Energy Demand and the Impact of Energy Prices: Evidence from Senegal

This study analyzes household expenditure behavior at the quintile level, with a focus on energy expenditures. A Tobit Type I model is used for the estimation. Using the separability assumption of the AIDS model, expenditure elasticities and own-price elasticities are computed despite the lack of information on consumer prices. Results indicate that households behave according to their level of income. The poorest quintile has the highest budget share for kerosene, while the richest has the highest budget share for electricity, LPG, and fuel for transport. Results showed that firewood, charcoal, and kerosene are normal goods. But electricity, LPG, and fuel for transportation are superior goods for most of the quintiles. Own-price elasticities showed that the poorest quintiles are very sensitive to the price change of electricity, LPG, and charcoal. But the richest are very sensitive to fuel for transportation price variations. These results suggest that universal subsidies are not appropriate in such context. If the goal of a fuel subsidy is to reduce energy poverty, targeted fuel subsidies should be preferred to universal subsidies, especially for electricity, LPG and fuel for transportation.