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Energy subsidies reform in Jordan : welfare implications of different scenarios

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  • Atamanov,Aziz
  • Jellema,Jon Robbert
  • Serajuddin,Umar

Abstract

Facing a fiscal crisis, Jordan initiated substantial petroleum subsidy reforms in 2012. The government has also long contemplated how to cut electricity subsidies, which surpass the fiscal burdens imposed by the petroleum subsidies. This paper estimates the impacts of the 2012 petroleum subsidies reform on household welfare and government revenues. It also simulates the distributional and fiscal impacts from ending subsidies in the electricity sector, where the pricing structure is more complex than petroleum prices. The paper looks at the direct and indirect impacts of reform. Moreover, the paper discusses the political economy considerations of reform. While the full removal of petroleum subsidies would have increased poverty, the compensatory cash transfer program the government instituted is estimated to have fully offset the negative impact for the poorer population. The impact of reforms in the electricity sector will depend significantly on the implementation method chosen. A flat increase of tariffs toward cost recovery will put a huge burden on the poorest households. However, a progressive increase in tariffs will generate substantial savings for the government, even with compensatory mechanisms to mitigate the strong negative impact on the vulnerable population. The immediate compensation of the losers from reform appears to be a crucial factor in the successful implementation of reforms in Jordan.

Suggested Citation

  • Atamanov,Aziz & Jellema,Jon Robbert & Serajuddin,Umar, 2015. "Energy subsidies reform in Jordan : welfare implications of different scenarios," Policy Research Working Paper Series 7313, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7313
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    References listed on IDEAS

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    1. Joao Pedro Azevedo, 2011. "WBOPENDATA: Stata module to access World Bank databases," Statistical Software Components S457234, Boston College Department of Economics, revised 09 Jul 2020.
    2. Joana Silva & Victoria Levin & Matteo Morgandi, 2013. "Inclusion and Resilience : The Way Forward for Social Safety Nets in the Middle East and North Africa," World Bank Publications - Books, The World Bank Group, number 14064, December.
    3. World Bank, 2009. "Hashemite Kingdom of Jordan - Poverty Update : Appendices," World Bank Publications - Reports 3137, The World Bank Group.
    4. World Bank, 2009. "Hashemite Kingdom of Jordan - Poverty Update : Main Report," World Bank Publications - Reports 3136, The World Bank Group.
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    Cited by:

    1. Shamma A. Alam & Gabriela Inchauste & Umar Serajuddin, 2017. "The Distributional Impact of Fiscal Policy in Jordan," Commitment to Equity (CEQ) Working Paper Series 44, Tulane University, Department of Economics.
    2. Silva,Joana C. G. & Morgandi,Matteo & Levin,Victoria, 2016. "Trust in government and support for redistribution," Policy Research Working Paper Series 7675, The World Bank.
    3. Simon Hilpert & Franziska Dettner & Ahmed Al-Salaymeh, 2020. "Analysis of Cost-Optimal Renewable Energy Expansion for the Near-Term Jordanian Electricity System," Sustainability, MDPI, vol. 12(22), pages 1-21, November.
    4. Hertog, Steffen, 2020. "Reforming wealth distribution in Kuwait: estimating costs and impacts," LSE Research Online Documents on Economics 105564, London School of Economics and Political Science, LSE Library.
    5. Asem Tahtamouni & Fouzan Al Qaisi & Usama Adnan Fendi, 2017. "The Effect of Oil Price Falling on the Jordanian Economic System," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 282-289.
    6. Joana Silva & Victoria Levin & Matteo Morgandi, 2013. "Inclusion and Resilience : The Way Forward for Social Safety Nets in the Middle East and North Africa," World Bank Publications - Books, The World Bank Group, number 14064, December.

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    Keywords

    Transport Economics Policy&Planning; Energy Production and Transportation; Economic Theory&Research; Emerging Markets; Markets and Market Access;
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