Are Subsidies Decisive in the Provision of Energy to the Urban Poor? The Cases of Kerosene and Electricity in Ethiopia
for the Study of African Economies (CSAE) and St Antony’s College, Oxford
University and Department of Economics, Addis Ababa University
objective of this paper is to examine if kerosene and electricity subsidies
are significant in making the fuels accessible to urban poor households in
Ethiopia. The purchasing power of
households, as measured by energy expenditures, is compared to costs of
kerosene and electricity use. The
empirical results indicate that subsidies cover only a small part of the
overall costs of kerosene and electricity.
In addition, urban poor households seem to have the purchasing power to
access kerosene and electricity without subsidy (probably with a small
shortfall in the case of electricity). The
main problem is related to upfront fixed costs, particularly for electricity.
Given the limitations of subsidy (e.g., leakage to non-targeted groups,
distortion of relative prices, wasteful consumption), the results imply
spreading out fixed costs over bills and/or providing credit facilities are
better and sustainable methods of reaching the urban poor.
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