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Energy Pricing Policies for Inclusive Growth in Latin America and the Caribbean

Author

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  • Guillermo Beylis
  • Barbara Cunha

Abstract

Government strategies for setting energy prices are not uniform across the Latin America and the Caribbean (LAC) region—or even across fuels. Instead, they cover a full spectrum, ranging from discretionary price-fixing at one end to pure market-based approaches at the other. In between is a wide variety of other schemes such as price stabilization funds, import or export parity pricing, price smoothing through tax levels, and targeted direct price subsidies or vouchers. Governments in the LAC region, however, tend to be small as measured by government revenues as a percentage of GDP. So their limited government resources have to be used wisely and be better targeted to the poor and vulnerable. Although energy subsidies are an inefficient policy tool for protecting the welfare of the poor, energy price increases can have a big impact on these households. Energy Pricing Policies for Inclusive Growth in Latin America and the Caribbean finds that energy subsidies are highly regressive in an absolute sense—that is, the lion’s share of every dollar spent on keeping energy prices low benefits wealthier households. However, subsidies for fuels that are widely used for cooking and heating—liquefied petroleum gas (LPG), natural gas, and kerosene—as well as for electricity, can be relatively neutral or progressive, implying that lower-income households capture benefits that are proportionate to their expenditures. In other words, although poorer households receive very little from every dollar spent on energy subsidies, that small amount may represent an important share of their expenditures. It is important, then, that governments expand the coverage and depth of their social safety nets to provide relief for poor households if energy prices rise. This report also finds that aggregate price impacts and the competitiveness effects of energy price increases are moderate to small and can be smoothed out through macropolicy responses.

Suggested Citation

  • Guillermo Beylis & Barbara Cunha, 2017. "Energy Pricing Policies for Inclusive Growth in Latin America and the Caribbean," World Bank Publications - Books, The World Bank Group, number 28299.
  • Handle: RePEc:wbk:wbpubs:28299
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    References listed on IDEAS

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    1. Orlando Gracia & Manuel Maiguashca & Luis Ernesto Mejía & David Yanovich, 2010. "La ley de fronteras y su efecto en el comercio de combustibles líquidos," Cuadernos de Fedesarrollo 9284, Fedesarrollo.
    2. Kojima,Masami, 2016. "Fossil fuel subsidy and pricing policies : recent developing country experience," Policy Research Working Paper Series 7531, The World Bank.
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    Cited by:

    1. Miria A. Pigato, 2019. "Fiscal Policies for Development and Climate Action," World Bank Publications - Books, The World Bank Group, number 31051.
    2. Calì, Massimiliano & Cantore, Nicola & Iacovone, Leonardo & Pereira-López, Mariana & Presidente, Giorgio, 2022. "Too much energy The perverse effect of low fuel prices on firms," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    3. World Bank, 2020. "Global Economic Prospects, June 2020," World Bank Publications - Books, The World Bank Group, number 33748.
    4. Wheeler,Collette Mari & Baffes,John & Kabundi,Alain Ntumba & Kindberg-Hanlon,Gene & Nagle,Peter Stephen Oliver & Ohnsorge,Franziska Lieselotte, 2020. "Adding Fuel to the Fire : Cheap Oil during the COVID-19 Pandemic," Policy Research Working Paper Series 9320, The World Bank.

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