Energy Subsidies Reform in Jordan : Welfare Implications of Different Scenarios
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 esti...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/06/24649395/energy-subsidies-reform-jordan-welfare-implications-different-scenarios http://hdl.handle.net/10986/22189 |
| Summary: | 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. |
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