Impact of Energy Crises on Income Inequality: An Application of Piketty’s Hypothesis to Pakistan

Abstract

In Pakistan, the majority of people have access to energy supplies. However, people who are underprivileged, below the extreme poverty line, or part of the middle class often spend disproportionate portions of their income on energy supplies and services, to some extent because of higher upfront prices for energy supplies, expensive products, and expensive imported appliances. The nonavailability of low-cost energy supplies is mainly affecting underdeveloped regions that have mostly low-income households. We used the dynamic ordinary least squares method to look at the impact of the energy crisis on income inequality from 1997 to 2021. The results show that the energy crisis exacerbates income inequality as low-income groups end up spending more significant shares of their income on energy products, supplies, and services than higher-income groups. Fair and equal access to energy supplies and services is less likely to reduce income inequality if prices are not cost-efficient. Cautious deliberation regarding the structure of energy tariffs is inevitable; at the same time, safety nets and social security programs for the poorest groups need to be expanded. At this stage, the aim is to target energy prices that will achieve the objectives of reducing polarity and increasing real income.