IDEAS home Printed from https://ideas.repec.org/a/spr/inecre/v57y2022i2d10.1007_s41775-022-00150-z.html
   My bibliography  Save this article

Tariff differential subsidy (TDS) effects and welfare gains in Pakistan

Author

Listed:
  • Ghulam Samad

    (Central Asia Regional Economic Cooperation (CAREC), Institute)

  • Naseem Faraz

    (Pakistan Institute of Development Economics (PIDE))

  • Haroon S. Awan

    (Central Asia Regional Economic Cooperation (CAREC), Institute
    Planning Commission of Pakistan)

Abstract

The electricity sector in Pakistan is over-regulated and hugely subsidised, which leads to a distortion in the market-oriented framework. Trillions of rupees have been paid for the Tariff Differential Subsidy (TDS) that has resulted in continued rising circular debt. The evidence on the effects of TDS on macroeconomic and welfare gains has not been established yet. This study investigates the impact of the direct transfer mechanism of TDS on macroeconomic gains and social welfare. We use the Computable General Equilibrium (CGE) framework to assess the impacts. The scenario analysis drives us to the following findings: first, the TDS is an untargeted subsidy, and the removal of this subsidy reduces fiscal deficit and eases out financial hardships in the country. Second, rather than providing relief to the poor, the TDS largely benefits the urban rich segment. This analysis provides compelling evidence that the removal of subsides will not only enable policymakers to devise a long-term and sustainable solution for the distortion in the electricity market but will also help mitigate its negative economic implications.

Suggested Citation

  • Ghulam Samad & Naseem Faraz & Haroon S. Awan, 2022. "Tariff differential subsidy (TDS) effects and welfare gains in Pakistan," Indian Economic Review, Springer, vol. 57(2), pages 373-392, December.
    • Handle: RePEc:spr:inecre:v:57:y:2022:i:2:d:10.1007_s41775-022-00150-z
    DOI: 10.1007/s41775-022-00150-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s41775-022-00150-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s41775-022-00150-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "The dynamics of electricity consumption and economic growth: A revisit study of their causality in Pakistan," Energy, Elsevier, vol. 39(1), pages 146-153.
    2. Jamil, Faisal & Ahmad, Eatzaz, 2010. "The relationship between electricity consumption, electricity prices and GDP in Pakistan," Energy Policy, Elsevier, vol. 38(10), pages 6016-6025, October.
    3. Muhammad, Shahbaz, 2011. "Electricity Consumption, Financial Development and Economic Growth Nexus: A Revisit Study of Their Causality in Pakistan," MPRA Paper 35588, University Library of Munich, Germany, revised 27 Dec 2011.
    4. Paul Dorosh & Muhammad Khan Niazi & Hina Nazli, 2003. "Distributional Impacts of Agricultural Growth in Pakistan: A Multiplier Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(3), pages 249-275.
    5. Hafiz A. Pasha & Wasim Saleem, 2013. "The Impact and Cost of Power Load Shedding to Domestic Consumers," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 52(4), pages 355-373.
    6. Rehana Siddiqui & Hafiz Hanzla Jalil & Muhammad Nasir & Wasim Shahid Malik & Mahmood Khalid, 2008. "The Cost of Unserved Energy: Evidence from Selected Industrial Cities of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(3), pages 227-246.
    7. Rehana Siddiqui, 1999. "Demand for Energy and the Revenue Impact of Changes in Energy Prices," PIDE-Working Papers 1999:174, Pakistan Institute of Development Economics.
    8. Kristin Komives & Vivien Foster & Jonathan Halpern & Quentin Wodon, 2005. "Water, Electricity, and the Poor : Who Benefits from Utility Subsidies?," World Bank Publications - Books, The World Bank Group, number 6361.
    9. Böhringer, Christoph & Rutherford, Thomas Fox & Wiegard, Wolfgang, 2003. "Computable general equilibrium analysis: Opening a black box," ZEW Discussion Papers 03-56, ZEW - Leibniz Centre for European Economic Research.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Haroon S. Awan & Ghulam Samad & Naseem Faraz, 2019. "Electricity Subsidies and Welfare Analysis: The Perspective of Pakistan," PIDE-Working Papers 2019:164, Pakistan Institute of Development Economics.
    2. Khan, Muhammad Arshad & Abbas, Faisal, 2016. "The dynamics of electricity demand in Pakistan: A panel cointegration analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 65(C), pages 1159-1178.
    3. Jamil, Faisal, 2013. "On the electricity shortage, price and electricity theft nexus," Energy Policy, Elsevier, vol. 54(C), pages 267-272.
    4. Javid, Muhammad & Qayyum, Abdul, 2014. "Electricity consumption-GDP nexus in Pakistan: A structural time series analysis," Energy, Elsevier, vol. 64(C), pages 811-817.
    5. Al-mulali, Usama & Fereidouni, Hassan Gholipour & Lee, Janice Y.M., 2014. "Electricity consumption from renewable and non-renewable sources and economic growth: Evidence from Latin American countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 30(C), pages 290-298.
    6. Perwez, Usama & Sohail, Ahmed & Hassan, Syed Fahad & Zia, Usman, 2015. "The long-term forecast of Pakistan's electricity supply and demand: An application of long range energy alternatives planning," Energy, Elsevier, vol. 93(P2), pages 2423-2435.
    7. Shahateet, Mohammed Issa & Al-Majali, Khalid Ali & Al-Hahabashneh, Fedel, 2014. "Causality and Cointegration between Economic Growth and Energy Consumption: Econometric Evidence from Jordan," MPRA Paper 59067, University Library of Munich, Germany, revised Oct 2014.
    8. Mohammed Issa Shahateet, 2014. "Modeling Economic Growth and Energy Consumption in Arab Countries: Cointegration and Causality Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 4(3), pages 349-359.
    9. Alsaedi, Yasir Hamad & Tularam, Gurudeo Anand, 2020. "The relationship between electricity consumption, peak load and GDP in Saudi Arabia: A VAR analysis," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 175(C), pages 164-178.
    10. Lin, Boqiang & Raza, Muhammad Yousaf, 2021. "Analysis of electricity consumption in Pakistan using index decomposition and decoupling approach," Energy, Elsevier, vol. 214(C).
    11. Zhang, Jinjun & Abbasi, Kashif Raza & Hussain, Khadim & Akram, Sabahat & Alvarado, Rafael & Almulhim, Abdulaziz I., 2022. "Another perspective towards energy consumption factors in Pakistan: Fresh policy insights from novel methodological framework," Energy, Elsevier, vol. 249(C).
    12. Hamdi, Helmi & Sbia, Rashid & Shahbaz, Muhammad, 2014. "The nexus between electricity consumption and economic growth in Bahrain," Economic Modelling, Elsevier, vol. 38(C), pages 227-237.
    13. Sofien, Tiba & Omri, Anis, 2016. "Literature survey on the relationships between energy variables, environment and economic growth," MPRA Paper 82555, University Library of Munich, Germany, revised 14 Sep 2016.
    14. Pandelara, Diego & Kristjanpoller, Werner & Michell, Kevin & Minutolo, Marcel C., 2022. "A fuzzy regression causality approach to analyze relationship between electrical consumption and GDP," Energy, Elsevier, vol. 239(PE).
    15. Nawaz, Saima & Iqbal, Nasir & Anwar, Saba, 2014. "Modelling electricity demand using the STAR (Smooth Transition Auto-Regressive) model in Pakistan," Energy, Elsevier, vol. 78(C), pages 535-542.
    16. Sunde, Tafirenyika, 2017. "Energy Consumption and Economic Growth Modelling in SADC Countries: An Application of the VAR Granger Causality," MPRA Paper 86505, University Library of Munich, Germany, revised 24 Nov 2017.
    17. Saleheen, Khan & Farooq Ahmed, Jam & Muhammad, Shahbaz, 2012. "Electricity Consumption and Economic Growth in Kazakhstan: Fresh Evidence from a Multivariate Framework Analysis," MPRA Paper 43460, University Library of Munich, Germany, revised 20 Dec 2012.
    18. Malik, Afia, 2019. "Dynamics and Determinants of Energy Intensity: Evidence from Pakistan," MPRA Paper 103456, University Library of Munich, Germany.
    19. Shahbaz, Muhammad & Lean, Hooi Hooi, 2012. "The dynamics of electricity consumption and economic growth: A revisit study of their causality in Pakistan," Energy, Elsevier, vol. 39(1), pages 146-153.
    20. Yıldırım, Ertugrul & Sukruoglu, Deniz & Aslan, Alper, 2014. "Energy consumption and economic growth in the next 11 countries: The bootstrapped autoregressive metric causality approach," Energy Economics, Elsevier, vol. 44(C), pages 14-21.

    More about this item

    Keywords

    Tariff differential subsidy; Targeted subsidy; Fiscal; Growth; Market;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:inecre:v:57:y:2022:i:2:d:10.1007_s41775-022-00150-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.