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Tax Reform and Energy in the Philippines Economy: A General Equilibrium Computation

This paper examines how energy tax cuts, offset with income tax increases, affect production, consumption, and total welfare in the Philippines economy. Our results show that energy tax cuts expand the energy and nonmetal mining sectors, but decrease output in the manufacturing, agricultural, and metal mining sectors. Consumption o all goods and services combined increases as the amount of energy tax reduction increases. Our welfare results, however, are mixed. Mile the welfare of the mid- and high-income levels increases, that of the lowest income level decreases. These results are robust with respect to changes in the elasticity of substitution in energy production as well as the elasticity of substitution in consumer demand. From the standpoint of economic efficiency, a policy such as this would enhance growth and aggregate income. From an equity standpoint, however, this policy is highly regressive in spite of the fact that the richest households pay proportionately more to finance the energy tax reduction.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Access – Energy Poverty and Equity

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q16: Agricultural R&D; Agricultural Technology; Biofuels; Agricultural Extension Services, Q40: Energy: General, Q24: Renewable Resources and Conservation: Land, Q28: Renewable Resources and Conservation: Government Policy

Keywords: Tax reform, Philippines, CGE model, Energy policy, Energy prices, Welfare

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-8

Published in Volume15, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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