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The Impacts of Fossil Fuel Subsidy Removal on Bangladesh Economy

Author

Listed:
  • AMIN, SAKIB

    (North South University, Bangladesh)

  • MARSILIANI, LAURA

    (Durham University Business School, UK)

  • RENSTRÖM, THOMAS

    (Durham University Business School, UK.)

Abstract

This paper investigates how the removal of fossil fuel subsidy affects the welfare of a small, oil-importing country like Bangladesh. In doing so, an energy augmented Dynamic Stochastic General Equilibrium (DSGE) model is developed. The model is calibrated and simulated for the Bangladesh economy under three scenarios, and the results reveal that a 10 per cent reduction in fossil fuel subsidy results in an overall increase in household welfare by 0.36 per cent. However, complete removal of fossil fuel subsidy would increase welfare by 1.89 per cent. The results also show that the subsidy removal schemes improve the country’s fiscal burden. We highlight the fact that fossil fuel subsidy acts as a barrier to the development of renewable energy technologies in Bangladesh which can play a significant role in promoting the country's future energy security. So, the paper suggests that the government should use the revenue earned from the fuel subsidy removal to offer incentives to new electricity generators who would enter in the market planning to produce electricity with renewable technology. Following a revenue-neutral subsidy scheme, the government should also encourage the existing electricity generators to adopt renewable technologies in generating electricity.

Suggested Citation

  • Amin, Sakib & Marsiliani, Laura & Renström, Thomas, 2018. "The Impacts of Fossil Fuel Subsidy Removal on Bangladesh Economy," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 41(02), pages 65-81, June.
    • Handle: RePEc:ris:badest:0823
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    References listed on IDEAS

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    Cited by:

    1. Khondaker Golam Moazzem & Moumita A. Mallick, 2022. "Volatile Global LNG Market and Its Impact on Public Spending in Social Sectors: Case of Bangladesh," CPD Policy Brief 38, Centre for Policy Dialogue (CPD).
    2. Amin, Sakib & Jamasb, Tooraj & Llorca, Manuel & Marsiliani, Laura & Renström, Thomas I., 2022. "Decarbonisation policies and energy price reforms in Bangladesh," Energy Policy, Elsevier, vol. 170(C).
    3. S. Mauricio Medinaceli Monrroy & Marcelo G. Velázquez Bilbao La Vieja, 2023. "Hydrocarbon Prices and Subsidies in Bolivia 1986 - 2025," Development Research Working Paper Series 05/2023, Institute for Advanced Development Studies.
    4. Amin, Sakib Bin & Chang, Youngho & Khan, Farhan & Taghizadeh-Hesary, Farhad, 2022. "Energy security and sustainable energy policy in Bangladesh: From the lens of 4As framework," Energy Policy, Elsevier, vol. 161(C).

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    More about this item

    Keywords

    Fossil Fuel Subsidy; DSGE Model; Renewable Energy; Bangladesh;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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