Energy populism and household welfare

Inspired on experiences observed in certain developing countries, we propose a simple model to explain the emergence of a class of subsidized energy price cycles. It exploits the use of median household's preferences for receiving transfer gains followed by future transfer losses. In our empirical application, we use data on natural gas and electricity prices, taxes, energy consumption, and household characteristics for the Buenos Aires Metropolitan Region during the 2003–2014 period. We provide detailed estimates of the actual transfers, their middle- to high-income bias and the corresponding effects on the level and stability of household welfare of a departure of energy prices from opportunity costs.