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Analysing Alternative Policy Response to High Oil Prices, Using an Energy Integrated CGE Microsimulation Approach for South Africa


  • Margaret Chitiga
  • Ismail Fofana
  • Ramos Mabugu


An energy-focused integrated CGE microsimulation approach is used to assess the implications of differential government policy responses in South Africa, to increases in international oil prices. The first scenario assumes that increases in world oil and petroleum products are passed through to end users with no changes in government tax/subsidy instruments. The second scenario assumes that the world price increases are nullified by a full price subsidy by government in one scenario, while, in the third scenario, revenues generated from a 50 percent tax on the windfall profit of the synthetic petroleum industry, help to minimize the loss in government revenue. Overall output falls by between 2.2 and 2.5 percent, while the government deficit varies from a worsening of 12 to 22 percent under the three scenarios. Synthetic petroleum, coal, and electricity benefit under the floating price scenario, while none expands its output when a 50 percent tax is levied on the profit of the synthetic petroleum industry. Unemployment increases among medium and low-skilled workers, while skilled workers witness a substantial fall in their remuneration, particularly in rural areas. In both rural and urban areas, women are adversely affected relative to men. The poverty headcount ratio and inequality increase slightly more in the price-setting scenarios relative to the floating-price scenario. Thus, allowing the prices to be passed through to end users probably has a less adverse impact at a macroeconomic level, although there may be adverse distributional consequences.

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  • Margaret Chitiga & Ismail Fofana & Ramos Mabugu, 2010. "Analysing Alternative Policy Response to High Oil Prices, Using an Energy Integrated CGE Microsimulation Approach for South Africa," Working Papers 196, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:196

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    References listed on IDEAS

    1. Roy Bahl & Jorge Martinez-Vazquez, 2013. "Sequencing Fiscal Decentralization," Annals of Economics and Finance, Society for AEF, vol. 14(2), pages 641-687, November.
    2. Roy Bahl, 1999. "Implementation Rules For Fiscal Decentralization," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper9901, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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    Cited by:

    1. Fofana, Ismaël, 2012. "Including women in the policy responses to high oil prices: a case study of South Africa," IFPRI discussion papers 1169, International Food Policy Research Institute (IFPRI).

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