The Distributional Impact of Efficient Energy Pricing in India

Abstract

This chapter by Coady and Hanedar revisits the issue of the distributional impact of energy subsidy reform. It adds to the existing literature on a number of fronts. First, based on recent estimates of efficient energy taxes for India in the literature, it calculates the domestic energy price increases required to bring energy prices to levels that reflect the true social cost of energy consumption, including domestic and global environmental damage. It then simulates the impact of these price increases on household real incomes and how this varies across household income groups. Second, it extends the analysis to the efficient pricing of coal, the most polluting of all energy sources. Third, it also identifies key sectors of the economy that are likely to be the most impacted by higher energy prices.