Social Welfare Effects of Taxes on Energy Products in Pakistan: A Computable General Equilibrium Approach

Using a 1983 social accounting matrix, we develop a computable general equilibrium model of energy-economy interactions in Pakistan (GE-PAK). The model is applied to evaluate energy pricing policy in Pakistan. Simulation results include the marginal social welfare effects of changes in taxes on eight commercial energy products. This paper computes the elasticities of social welfare with respect to indirect tax revenues generated by energy taxes. The paper reports these elasticities and ranks the eight energy products according to these elasticities. The model is simulated for two scenarios; one of the scenarios considers income distributional effects. Results show the energy products which have relatively high social welfare elasticities and how their rankings change when income distributional or equity effects are taken into account.