An Evaluation of the Welfare Impact ofHigher Energy Prices in Madagascar
Africa Region Working Paper Series No. 106June 28, 2007
n this paper we estimate the effect of a rise in petroleum prices on living standards inMadagascar combining information on expenditure patterns from the
Enquete Aupresdes Menages
2005 with an input-output model describing how petroleum priceincreases propagate across economic sectors. We identify both a
welfare effect(heating and lighting one’s house become more expensive) and an
effect (theprice of food and anything else which has to be transported from factory to shop rises).We find that, a 17 percent rise in oil prices produces, on average, a 1.75 percent increasein household expenditures (1.5 percent for high-income households, 2.1 for thehouseholds in the bottom expenditure quintile). Circa 60 percent of the increase inexpenditures is due to the indirect effect, mostly
higher food prices. Although energyprice increases hurt the poor more in percentage terms, subsidizing would involve asubstantial leakage in favor of higher income households. This raises the issue of identifying more cost-effective policies to protect the poor households against energyprice increases
JEL classification system
: D57, H2, Q4, R2.
: energy prices; oil; price subsidies; input-output analysis; Madagascar.
Authors’ Affiliation and Sponsorship
Noro Aina Andriamihaja, Economist, AFTP1
(Università di Roma “Tor Vergata”)firstname.lastname@example.org
The Africa Region Working Paper Series expedites dissemination of applied research and policy studies with potentialfor improving economic performance and social conditions in Sub-Saharan Africa. The Series publishes papers atpreliminary stages to stimulate timely discussion within the Region and among client countries, donors, and the policyresearch community. The editorial board for the Series consists of representatives from professional families appointedby the Region’s Sector Directors. For additional information, please contact Paula White, managing editor of the series,(81131), Email:email@example.com visit the Web site:http://www.worldbank.org/afr/wps/index.htm.
The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s), theydo not necessarily represent the views of the World Bank Group, its Executive Directors, or the countries theyrepresent and should not be attributed to them
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