Computable general equilibrium-microsimulation analysis of electricity price increases in South Africa

Abstract

This paper deals with an important issue of energy resources, especially electricity, and their critical role in addressing a key aspect of the United Nations Sustainable Development Goals, specifically the goal of poverty alleviation. The analysis applies a computable general equilibrium-microsimulation model to analyse the economy-wide and distributional impacts of the increase in electricity price in an emerging economy with limited electricity supply. A key benefit of this model is that it addresses the distributional and poverty impacts related to the change in electricity prices, which have yet to be covered in previous studies. The paper simulates an actual price increase experienced in the economy and an increase linked to inflation. While the macro results show a negative impact on the economy in terms of a decrease in GDP, an increase in prices and an increase in unemployment, the micro results indicate that poverty declines as measured by the rate and poverty incidence curves. Several policy implications arise from these findings, such as considering more progressive taxation policies to counteract the slight increase in inequality resulting from higher electricity prices.