The Distributional and Fiscal Implications of Public Utility Pricing

IMF Working Papers, June 2, 2023

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Canonical URL: The Distributional and Fiscal Implications of Public Utility Pricing

The setting of public utility prices involves balancing competing government policy objectives, from equity concerns to ensuring the financial sustainability of providers and balancing public finances.
In practice, public utility pricing often departs significantly from government objectives and tends to be characterized by unnecessarily complex price schedules, below cost-recovery tariff rates, and sectoral inefficiencies that contribute to large fiscal costs.
Countries commonly embark on utility pricing reform in response to these heavy fiscal pressures.
The paper discusses various reform options available to governments, with a focus on residential pricing schedules, highlighting their fiscal, financial, redistributive, and efficiency implications.

The paper concentrates on residential pricing schedules.
Reform options are evaluated with respect to:
- fiscal implications
- financial implications for providers
- redistributive implications for households
- efficiency implications across sectors

Subject: Commodities, Consumption, Electricity, Household consumption, Income, National accounts, Tariffs, Taxes
Keywords: baseline tariff schedule, Consumption, cost-recovery tariff, efficiency, Electricity, equity, fiscal sustainability, Household consumption, Income, proxy-means test discount scheme, Public utility pricing, subsidy reform, Tariffs, utility pricing reform strategy