Fiscal and Welfare Impacts of Electricity Subsidies in Central America

Central American countries spend approximately one percent of their aggregate gross domestic product subsidizing residential electricity consumption. This amount is comparable with what these countries spend on education and social assistance. The pressure that electricity subsidies exert on governm...

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Main Authors:	Hernández Oré, Marco Antonio, Sánchez, Luis Álvaro, Sousa, Liliana D., Tornarolli, Leopoldo
Format:	Book
Language:	English en_US
Published:	Washington, DC: World Bank 2017
Subjects:	SUBSIDIES ELECTRICITY EQUITY PUBLIC SPENDING MACRO-FISCAL POLICY INEQUALITY FISCAL BENEFIT-INCIDENCE ANALYSIS SIMULATIONS OF REFORMS
Online Access:	http://hdl.handle.net/10986/28504

id	okr-10986-28504
recordtype	oai_dc
spelling	okr-10986-285042021-04-23T14:04:48Z Fiscal and Welfare Impacts of Electricity Subsidies in Central America Hernández Oré, Marco Antonio Sánchez, Luis Álvaro Sousa, Liliana D. Tornarolli, Leopoldo Hernández Oré, Marco Antonio Sánchez, Luis Álvaro Sousa, Liliana D. Tornarolli, Leopoldo Korczyc, Ewa Olivera, Laura Rizo Patrón, Luis SUBSIDIES ELECTRICITY EQUITY PUBLIC SPENDING MACRO-FISCAL POLICY INEQUALITY FISCAL BENEFIT-INCIDENCE ANALYSIS SIMULATIONS OF REFORMS Central American countries spend approximately one percent of their aggregate gross domestic product subsidizing residential electricity consumption. This amount is comparable with what these countries spend on education and social assistance. The pressure that electricity subsidies exert on government budgets is particularly high when international energy prices rise. Electricity subsidies also provide perverse incentives for the overconsumption of electricity as households do not pay the true cost of their consumption, which in turn reduces incentives to increase energy efficiency. This book answers key questions regarding residential electricity subsidies in Central America. In particular: How do the subsidy mechanisms function in each country? What are their fiscal costs? Are these subsidies good value for the money? How efficient are subsidies in reaching households in need, and what drives this efficiency? What are the reform options? The main message of this book is that there is considerable scope for improving the efficiency of electricity subsidies in Central America by better targeting them to low-income households. The book shows that electricity subsidies help reduce the burden of electricity costs on the lowest-income groups. However, the existing electricity subsidy schemes are very inefficient at targeting resources to low-income households, with the majority of government spending going to higher-income households. Indeed, most countries in the region have the opportunity to significantly reduce the fiscal costs of electricity subsidies without imposing significant costs on households, particularly poor households. Given the limited fiscal space in the region and the major needs of the countries in terms of social services and physical infrastructure, this study seeks to provide Central American policymakers with the analytical foundations necessary to assess the costs and benefits of their electricity subsidy mechanisms, and design effective reform strategies that reflect their unique circumstances and policy priorities. 2017-10-11T17:32:54Z 2017-10-11T17:32:54Z 2017-10-11 Book 978-1-4648-1104-3 http://hdl.handle.net/10986/28504 English en_US Directions in Development—Public Sector Governance; CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank Washington, DC: World Bank Publications & Research Publications & Research :: Publication Latin America & Caribbean Central America
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	SUBSIDIES ELECTRICITY EQUITY PUBLIC SPENDING MACRO-FISCAL POLICY INEQUALITY FISCAL BENEFIT-INCIDENCE ANALYSIS SIMULATIONS OF REFORMS
spellingShingle	SUBSIDIES ELECTRICITY EQUITY PUBLIC SPENDING MACRO-FISCAL POLICY INEQUALITY FISCAL BENEFIT-INCIDENCE ANALYSIS SIMULATIONS OF REFORMS Hernández Oré, Marco Antonio Sánchez, Luis Álvaro Sousa, Liliana D. Tornarolli, Leopoldo Fiscal and Welfare Impacts of Electricity Subsidies in Central America
geographic_facet	Latin America & Caribbean Central America
relation	Directions in Development—Public Sector Governance;
description	Central American countries spend approximately one percent of their aggregate gross domestic product subsidizing residential electricity consumption. This amount is comparable with what these countries spend on education and social assistance. The pressure that electricity subsidies exert on government budgets is particularly high when international energy prices rise. Electricity subsidies also provide perverse incentives for the overconsumption of electricity as households do not pay the true cost of their consumption, which in turn reduces incentives to increase energy efficiency. This book answers key questions regarding residential electricity subsidies in Central America. In particular: How do the subsidy mechanisms function in each country? What are their fiscal costs? Are these subsidies good value for the money? How efficient are subsidies in reaching households in need, and what drives this efficiency? What are the reform options? The main message of this book is that there is considerable scope for improving the efficiency of electricity subsidies in Central America by better targeting them to low-income households. The book shows that electricity subsidies help reduce the burden of electricity costs on the lowest-income groups. However, the existing electricity subsidy schemes are very inefficient at targeting resources to low-income households, with the majority of government spending going to higher-income households. Indeed, most countries in the region have the opportunity to significantly reduce the fiscal costs of electricity subsidies without imposing significant costs on households, particularly poor households. Given the limited fiscal space in the region and the major needs of the countries in terms of social services and physical infrastructure, this study seeks to provide Central American policymakers with the analytical foundations necessary to assess the costs and benefits of their electricity subsidy mechanisms, and design effective reform strategies that reflect their unique circumstances and policy priorities.
author2	Hernández Oré, Marco Antonio
author_facet	Hernández Oré, Marco Antonio Hernández Oré, Marco Antonio Sánchez, Luis Álvaro Sousa, Liliana D. Tornarolli, Leopoldo
format	Book
author	Hernández Oré, Marco Antonio Sánchez, Luis Álvaro Sousa, Liliana D. Tornarolli, Leopoldo
author_sort	Hernández Oré, Marco Antonio
title	Fiscal and Welfare Impacts of Electricity Subsidies in Central America
title_short	Fiscal and Welfare Impacts of Electricity Subsidies in Central America
title_full	Fiscal and Welfare Impacts of Electricity Subsidies in Central America
title_fullStr	Fiscal and Welfare Impacts of Electricity Subsidies in Central America
title_full_unstemmed	Fiscal and Welfare Impacts of Electricity Subsidies in Central America
title_sort	fiscal and welfare impacts of electricity subsidies in central america
publisher	Washington, DC: World Bank
publishDate	2017
url	http://hdl.handle.net/10986/28504
_version_	1764467045610553344

Fiscal and Welfare Impacts of Electricity Subsidies in Central America

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