Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107354
Authors: 
Glomm, Gerhard
Jung, Jürgen
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5201
Abstract: 
We construct a dynamic model of a small open economy to analyze the effects of large energy subsidies. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. Our main results for a 15 percent cut in energy subsidies are: (i) Steady state GDP drops in most of our experiments as less energy is used in production. (ii) Steady state consumption rises in most of our experiments. (iii) Welfare can rise by as much as 0.6 percent in consumption equivalent terms. (iv) The largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment.
Subjects: 
energy subsidies
fiscal policy reform
public sector reform
growth
JEL: 
E21
E63
H55
J26
J45
Document Type: 
Working Paper

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