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GTAP Resource #4992

"Structural Reform in the Gulf Cooperation Council Region – Case Study (1) Taxation Reform in Saudi Arabia"
by Adams, Philip and Louise Roos

Based on estimates from the SAGE baseline, in 2014 subsidies on the use of petroleum products and electricity are equivalent in value to 9.9 per cent of GDP. For the energy and utility price scenario, it was assumed that the subsidies present in the baseline are cut to zero in a linear way between 2015 and 2018. Cutting the subsidies will cause the purchasers’ price of petroleum products to increase by around 260 per cent, and the users’ price of electricity to increase by about 75 per cent.
It is assumed that the monies saved from the removal of these subsidies are returned partly to the directly affected industries (petroleum products and electricity) to ensure that investments planned from 2015 onwards are not affected by the reduction in demand as the subsidies are removed. The remainder is handed to households as a non-distorting lump sum payment.
Key findings are:
• In the short run, removing the energy subsidies causes employment to fall relative to its baseline level. Over time, the employment deviation is progressively eliminated as the real wage rate adjusts. In the long-run employment rises slightly relative to its baseline level due to compositional shifts in the economy.
• Removal of the energy subsidies reduces productivite capital slightly. In the short-run the economy’s labour/capital ratio falls. In the long-run it rises.
• Removing the energy subsidies eliminates a large distortion in the economy. This improves the efficiency of resource use, such that even though employment and capital in most years fall relative to baseline levels, real GDP rises.
• Removing the electricity subsidy increases real consumption (private plus public) and, hence, improves the overall welfare of the population.
• Removing the energy subsidies leads to an improvement in the net volume of trade, while leading to a mixed outcome for industries. Production for some industries increases relative to baseline, while production in other industries falls.

Resource Details (Export Citation) GTAP Keywords
Category: 2016 Conference Paper
Status: Published
By/In: Presented at the 19th Annual Conference on Global Economic Analysis, Washington DC, USA
Date: 2016
Version: 1
Created: Adams, P. (4/15/2016)
Updated: Adams, P. (4/15/2016)
Visits: 1,140
- Dynamic modeling
- Economic development
- Economic growth
- Other data bases and data issues
- Middle East

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