Welfare and distributional effects of the energy subsidy reform in the gulf cooperation council countries: The case of sultanate of Oman

Houcine Boughanmi, Muhammad Aamir Khan

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The gulf cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014. The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure. Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators. The study uses an extended version of the general equilibrium GTAP model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman. Results indicate the effects of reducing the energy subsidy by 50% would lead to a slight increase in the gross domestic product by 0.62%, an increase in government saving by 2.9 billion US * and a reduction in household welfare by about 3% due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.

Original languageEnglish
Pages (from-to)228-236
Number of pages9
JournalInternational Journal of Energy Economics and Policy
Volume9
Issue number1
DOIs
Publication statusPublished - Jan 1 2019

Fingerprint

Electricity
Economics
Gases
Oils
Subsidies
Welfare effects
Oman
Energy
Distributional effects
Gulf Cooperation Council
Household
Energy prices
Government
Gini coefficient
Inflation

Keywords

  • Energy subsidy
  • MyGATP
  • Oman

ASJC Scopus subject areas

  • Energy(all)
  • Economics, Econometrics and Finance(all)

Cite this

@article{d1e6781081184533995efe5430853ba7,
title = "Welfare and distributional effects of the energy subsidy reform in the gulf cooperation council countries: The case of sultanate of Oman",
abstract = "The gulf cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014. The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure. Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators. The study uses an extended version of the general equilibrium GTAP model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman. Results indicate the effects of reducing the energy subsidy by 50{\%} would lead to a slight increase in the gross domestic product by 0.62{\%}, an increase in government saving by 2.9 billion US * and a reduction in household welfare by about 3{\%} due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.",
keywords = "Energy subsidy, MyGATP, Oman",
author = "Houcine Boughanmi and Khan, {Muhammad Aamir}",
year = "2019",
month = "1",
day = "1",
doi = "10.32479/ijeep.7142",
language = "English",
volume = "9",
pages = "228--236",
journal = "International Journal of Energy Economics and Policy",
issn = "2146-4553",
publisher = "EconJournals",
number = "1",

}

TY - JOUR

T1 - Welfare and distributional effects of the energy subsidy reform in the gulf cooperation council countries

T2 - The case of sultanate of Oman

AU - Boughanmi, Houcine

AU - Khan, Muhammad Aamir

PY - 2019/1/1

Y1 - 2019/1/1

N2 - The gulf cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014. The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure. Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators. The study uses an extended version of the general equilibrium GTAP model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman. Results indicate the effects of reducing the energy subsidy by 50% would lead to a slight increase in the gross domestic product by 0.62%, an increase in government saving by 2.9 billion US * and a reduction in household welfare by about 3% due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.

AB - The gulf cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014. The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure. Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators. The study uses an extended version of the general equilibrium GTAP model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman. Results indicate the effects of reducing the energy subsidy by 50% would lead to a slight increase in the gross domestic product by 0.62%, an increase in government saving by 2.9 billion US * and a reduction in household welfare by about 3% due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.

KW - Energy subsidy

KW - MyGATP

KW - Oman

UR - http://www.scopus.com/inward/record.url?scp=85058653739&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85058653739&partnerID=8YFLogxK

U2 - 10.32479/ijeep.7142

DO - 10.32479/ijeep.7142

M3 - Article

AN - SCOPUS:85058653739

VL - 9

SP - 228

EP - 236

JO - International Journal of Energy Economics and Policy

JF - International Journal of Energy Economics and Policy

SN - 2146-4553

IS - 1

ER -