Energy Price Reform and Household Welfare: The Case of Turkey

Abstract

A price reform in Turkey increased the residential electricity tariff by more than 50 percent in 2008. The reform, aimed at encouraging energy efficiency and private investment, sparked considerable policy debate about its potential impact on household welfare. This paper estimates a short-run residential electricity demand function to evaluate the distributional impact of the tariff increase. The analysis allows heterogeneity in households’ price sensitivity and the model is estimated using a nationally representative sample of 8,572 Turkish households. The results suggest that rich households in Turkey are three times as responsive in adjusting consumption to price changes as poor households are. In addition, the welfare loss of the poorest income quintile—measured by the change in consumer surplus as a percentage of income—is 2.9 times that of the wealthiest.

Keywords

Energy price reform Distributional impact Turkey

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