Distributional effects of reducing energy subsidies: Evidence from recent policy reform in Argentina

Abstract

We analyze the distributional effects of the reduction in energy subsidies in Argentina since 2016. As the policy reform also includes the introduction of a scheme to protect less well-off families (social tariff), we also review how well the targeting mechanism works. We apply traditional benefit-incidence analysis using household surveys and administrative data, focusing on residential subsidies to natural gas and electricity in the Buenos Aires Metropolitan Area. We find that the social tariff is relatively pro-poor, with significantly higher coverage among the poorest households. There are some exclusion errors in the low-income deciles and large inclusion errors in the medium-and high-income deciles. The distributive incidence of subsidies does not appear to have changed substantially. Energy subsidies in Argentina (lower in aggregate terms) continue to be, although progressive, pro-rich. The distributional effect is explained by the fact that generalized subsidies to all categories of consumption coexist with a relatively well targeted social tariff. Regarding energy budget shares, monthly spending on electricity has increased from 1.1 percent of total household income to 3.4 percent. Monthly spending on piped gas rose from 1.3 percent to 3.3 percent. These shares are in line with many other countries in the region. Naturally, there has been a convergence of tariffs toward service provision costs.

The Costs of Natural Gas Dependency: Price Shocks, Inequality, and Public Policy

“…Additionally, there are a number of papers considering the effect of targeting energy subsidy schemes to the most-affected groups. Giuliano et al (2020) investigate the effect of reducing energy subsidies in Argentina and find that reducing the universal energy subsidy while increasing targeted measures can lead to the same distributional outcome at lower costs for the government. For the case of Ukraine, Alberini and Umapathi (2021) estimate that a better targeting of energy subsidies could cut half the costs for the government at only a small welfare loss.…”

“…Therefore, policy makers will need to introduce energy-related subsidies to prevent social hardships of energy price increases. However, the question of how to best target a subsidy scheme is key for keeping the overall costs of the program low, while maximizing the effect (Giuliano et al, 2020, Alberini and Umapathi, 2021, Barrella et al, 2021. Subsidies for energy-efficient goods and technologies, for example, are preferentially taken up by high-income households and, therefore, often fail to decrease energy poverty (Allcott et al, 2015, Schleich, 2019, Lekavičius et al, 2020.…”

Incidencia distributiva de subsidios energéticos al consumo residencial general y con Tarifa Social Federal en Argentina

“…Esto fue importante para que tanto durante como después de la crisis de 2001-02 los hogares de bajos recursos pudieran mantener el poder adquisitivo real. Sin embargo, el costo de estos subsidios aumentó rápidamente debido a un aumento en los precios internacionales de la energía y la creciente demanda de bienes subsidiados en el contexto de una economía de rápido crecimiento (Giuliano et al, 2020). Durante este período de rápido crecimiento, tuvieron efectos perjudiciales sobre la sostenibilidad y la eficiencia del sector.…”

“…En Giuliano et al (2020), se detalla que el congelamiento de tarifas se efectivizó mediante la intervención estatal en el sector energético, con el gobierno como inversor principal y 1 Ver Hancevic & Navajas (2008), Alejo, Marchionni & Sosa Escudero (2008). 0,4% 0,3% 0,3% 0,6% 1,0% 1,1% 1,2% 1,2% 1,3% 1,7% 2,0% 1,8% 1,3% 0,8% 0,9% 0,9% 0,2% 0,3% 0,4% 0,5% 0,7% 1,3%…”

“…La metodología utilizada en Giuliano et al (2020), y replicada en este documento, es la metodología estándar en los estudios de incidencia e involucra tres etapas básicas: (i) ordenar hogares por algún indicador de bienestar, (ii) adoptar supuestos de identificación y estimar los beneficiarios de los subsidios, y (iii) medir la distribución del gasto en subsidios según la distribución de los beneficiarios obtenidos anteriormente.…”