The Effect of Two-Tiered Residential Electricity Pricing Reforms on Consumption of Non-Energy Goods and Services in Kyrgyzstan Based on Kyrgyz Integrated Household Survey (2014-2016)

Abstract

Due to the fact that electricity is relatively inelastic and consumers rely on it as a necessity rather than luxury, increase in electricity prices may affect consumers considerably especially in the short run. Some households are relatively flexible by acquiring more efficient electrical appliances or shifting to other sources of energy while for some group of people it is quite costly to do so. They would rather compensate for increased cost of electricity by reducing consumption of other goods and services from the consumer basket which are relatively elastic. This paper evaluates the impact of two-tiered electricity price increase reform on consumer well-being by analyzing the consumption basket structure. I analyze the effect of the electricity tariff hike on the households’ consumption expenditure patterns, by using various regressions, including the seemingly unrelated regression (SUR), the fixed effects (FE) and random effects (RE) methods for each consumption basket category for the aggregated consumption based on Kyrgyz Integrated Household Survey for 2014, 2015 and 2016. The results suggest that the policy effect on the consumption of non-food category was positive, suggesting that household welfare was not reduced. However, new tariff reforms are associated with a decrease in demand for the durable goods category. The effect on the housing and food expenditure categories is insignificant.