Abstract

http://ssrn.com/abstract=2037843
 
 

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A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy: The Case of Egypt


Gerhard Glomm


Indiana University Bloomington - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Juergen Jung


Towson University - Department of Economics

April 9, 2012

Center for Applied Economics and Policy Research Working Paper No. 2012-006

Abstract:     
We construct a dynamic general equilibrium model to analyze the effects of large energy subsidies in a small open economy. The model pays special attention to domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production including the provision of public infrastructure. The model is calibrated to data from Egypt and then used to study policy reforms such as reductions in energy subsidies with corresponding reductions in consumption taxes, labor taxes, capital taxes, or increases in infrastructure investment. We calculate the new steady states, the transition paths to the new steady state and the size of the associated welfare losses or gains. In response to a 15 percent cut in energy subsidies, GDP may fall as less energy is used in production. Excess energy is exported and capital imports are reduced. Welfare in consumption equivalent terms can rise by up to 0.6 percent of GDP. Gains in output can be realized only if the government re-invests into infrastructure.

Number of Pages in PDF File: 40

Keywords: energy subsidies, fiscal policy reform, public sector reform, growth

JEL Classification: E21, E63, H55, J26, J45

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Date posted: April 10, 2012  

Suggested Citation

Glomm, Gerhard and Jung, Juergen, A Macroeconomic Analysis of Energy Subsidies in a Small Open Economy: The Case of Egypt (April 9, 2012). Center for Applied Economics and Policy Research Working Paper No. 2012-006. Available at SSRN: http://ssrn.com/abstract=2037843 or http://dx.doi.org/10.2139/ssrn.2037843

Contact Information

Gerhard Glomm (Contact Author)
Indiana University Bloomington - Department of Economics ( email )
Wylie Hall
Bloomington, IN 47405-6620
United States
812-855-7256 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Juergen Jung
Towson University - Department of Economics ( email )
Baltimore, MD
United States
812-345-9182 (Phone)
HOME PAGE: http://pages.towson.edu/jjung/
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