Welfare and Distributional Effects of the Energy Subsidy Reform in the Gulf Cooperation Council Countries: The Case of Sultanate of Oman

Authors

  • Houcine Boughanmi Sultan Qaboos University
  • Muhammad Aamir Khan Institute of Information Technology, Islamabad. Pakistan

Abstract

The Gulf Cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014.  The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure.  Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators.  The study uses an extended version of the general equilibrium GTAP Model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman.  Results indicate the effects of reducing the energy subsidy by 50% would lead to a slight  increase in the GDP by  0.62% , an increase in government saving by 2.9 billion US $ and a reduction in household welfare by about 3% due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.

Keywords: Energy subsidy, MyGATP, Oman

JEL Classifications: Q40, C6, D6,O53

DOI: https://doi.org/10.32479/ijeep.7142

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Author Biography

Houcine Boughanmi, Sultan Qaboos University

Dr. Houcine Boughanmi is an associate professor and   WTO Chair at the Department of Natural Resource Economics at Sultan Qaboos University (SQU), Oman. He got his bachelor degree from the University of Tunis, then his MSc from the University of Kentucky, USA and His PhD from Oregon State University, USA.  Dr  Boughanmi  has More than 30 years of experience in teaching, research and community services and has published extensively in reputable academic journals. Dr. Boughanmi‘s  research interest includes international trade using partial and general equilibrium modeling, food demand, food  policy and food security. He  published on the effect of WTO on Oman's trade and the GCC regional trade arrangements and is currently working on MENA Regional Trade Arrangement. Under the WTO chair program he is coordinating a number of research activities dealing with Food security and WTO related issues. He also served as a co-investigator in a number of SQU funded research projects in the areas of agricultural production and marketing.  He served for the 4th  consecutive year as the Academic Coordinator of the Regional Trade Policy Course held at Sultan Qaboos University in collaboration with WTO.

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Published

2018-12-07

How to Cite

Boughanmi, H., & Khan, M. A. (2018). Welfare and Distributional Effects of the Energy Subsidy Reform in the Gulf Cooperation Council Countries: The Case of Sultanate of Oman. International Journal of Energy Economics and Policy, 9(1), 228–236. Retrieved from http://econjournals.com/index.php/ijeep/article/view/7142

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