Energy subsidies: conceptual framework and measurement for distributional impacts in Argentina

Abstract

Argentina has massively subsidized energy in recent decades, and the distributional impacts of those subsidies has been widely studied. However, regional disparities and public financing are two dimensions often omitted by previous research. We extend the analysis in these directions, focusing on the electricity sector. First, we develop a conceptual framework to formalize the deviation of prices from production costs. Second, by applying the “benefit incidence analysis” to household survey microdata, we measure subsidies at the household level and perform a distributional analysis. Our results indicate that regional disparities in electricity distribution costs and in the pricing schedules set by distribution companies are key drivers of the distributional impacts. Subsidies, as a percentage of the final price, vary between regions in the range of 50 to 80 percent. Additionally, omitting public financing leads to a bias in the perception of their redistributive effect: when subsidies are financed by a general consumption tax, the net benefits are less than half of the benefits from the subsidy alone. A series of globally relevant policy recommendations can be derived from the paper.