Expenditure of Low-Income Households on Energy : Evidence from Africa and Asia
Patterns of household energy use and expenditure have been the subject of a large number of studies. Household expenditures on energy-particularly, how much the poor spend-have policy implications for several reasons. First, policies to mitigate or cope with energy price shocks are increasingly focusing on targeted support to low-income households as a way of limiting the fiscal cost of such policies while offering protection to the most vulnerable members of society. Second, for governments looking to reform energy price subsidies, the effects on household welfare- especially effects on poor households-of price increases resulting from subsidy reduction/removal is an important policy consideration. But subsidies for liquid fuels targeting the poor are difficult to design and implement effectively, because liquid fuels tend to be used more by the rich than by the poor, and are also easy to transport (and hence to divert to non-poor users). For this reason, there is a growing recognition of the need to move away from price subsidies for liquid fuels to alternative forms of targeted assistance to compensate the poor for the adverse effects of higher fuel prices. Third, in areas where many households have not yet begun using modern commercial energy regularly, the amount they can afford to pay for such energy services is a relevant question. Quantifying expenditures on different types of energy at varying income levels provides a basis for addressing these questions. The paper also examines expenditures on motorized passenger transport and food, two items for which the price of oil is an important component of their cost structure and which are consequential in the budget of poor households.
| Summary: | Patterns of household energy use and
expenditure have been the subject of a large number of
studies. Household expenditures on energy-particularly, how
much the poor spend-have policy implications for several
reasons. First, policies to mitigate or cope with energy
price shocks are increasingly focusing on targeted support
to low-income households as a way of limiting the fiscal
cost of such policies while offering protection to the most
vulnerable members of society. Second, for governments
looking to reform energy price subsidies, the effects on
household welfare- especially effects on poor households-of
price increases resulting from subsidy reduction/removal is
an important policy consideration. But subsidies for liquid
fuels targeting the poor are difficult to design and
implement effectively, because liquid fuels tend to be used
more by the rich than by the poor, and are also easy to
transport (and hence to divert to non-poor users). For this
reason, there is a growing recognition of the need to move
away from price subsidies for liquid fuels to alternative
forms of targeted assistance to compensate the poor for the
adverse effects of higher fuel prices. Third, in areas where
many households have not yet begun using modern commercial
energy regularly, the amount they can afford to pay for such
energy services is a relevant question. Quantifying
expenditures on different types of energy at varying income
levels provides a basis for addressing these questions. The
paper also examines expenditures on motorized passenger
transport and food, two items for which the price of oil is
an important component of their cost structure and which are
consequential in the budget of poor households. |
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