Implications of Energy Subsidies from Economic Standpoint

Abstract

Energy use is essential for modern economic activities and is intensively subsidized by the governments. Nevertheless, those subsidies oftentimes bring about severe consequences in different forms including income inequality, deadweight losses, market efficiency, profligacy, etc. The energy subsidies bring about these adverse conditions through output, balance of payments and public finance channels. Developing countries suffer from unpleasant effects of energy subsidies more intensely due to budgetary reasons. Thus, to shun the adverse effects and inefficiencies caused by energy subsidies, the design of the subsidies needs to be calibrated by policymakers taking the country-specific conditions and ongoing trends in mind. Despite numerous commitments by the international society to reduce energy subsidies on several accounts, no significant outcome has been achieved on this ground thus far. Recent demand and price trends in the energy prices generate opportunities for reform. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.