The household effects of very large electricity tariff hikes in Zambia

This paper simulates the real household expenditure effects of electricity price increases in Zambia. First, we find that electricity subsidies are highly regressive. Second, our partial equilibrium model simulations of the welfare effects of electricity tariff rises show that poorer households suffer larger percentage losses in real expenditures compared to wealthier households. Naturally, this leads to increases in poverty. We find that removing electricity subsidies and transferring the realised fiscal savings to social cash transfers reduces extreme poverty significantly. This budget-neutral strategy is particularly attractive for Zambia, and other sub-Saharan economies currently facing the challenges of constrained growth, high budget deficits and high poverty rates simultaneously.