Price and budget elasticities under utility poverty policies in Spain

Abstract

Using household data, we estimate the price and budget elasticities of utility services (electricity, natural gas, and water) during the Great Recession in Spain. A nearly ideal quadratic demand system is estimated by controlling censorship and endogeneity problems, where households are split into two groups depending on their vulnerability. We observe differences in the consumption preferences depending on their vulnerability condition, but the relationship between vulnerability and demand sensitivity for utility services is unclear. Then, energy poverty policies such as the social discount rate for electricity would not be justified in terms of economic efficiency but rather for other reasons.