increase in prices. No immediate changes in consumption are assumed, which is consistent with limited substitutability among energy sources in the short run (due to both technical and financial reasons and, presumably, individual preferences). Everyone consumes the same, but at higher prices. This implies that individuals and households have fewer resources to purchase other goods and services. For less-well off households, these may include the necessary minimum consumption basket reflected in the poverty line. Changes in prices are thus equivalent to a proportional increase in the poverty line faced by the household (weighted by its relative composition in the basic consumption basket). The second effect considered is the indirect impact: the changes on prices of goods that result from energy price changes. This indirect effect captures the change in relative prices for the rest of the economy, and therefore, on the prices of the other components of the consumption basket. Price changes across sectors are estimated by applying the price changes of energy to final products that use energy as an intermediary input. Using the a 2010 I/O table for Tunisia, constructed by INS ( _Institut National de la Statistique_ ), a simple approximation of such economy-wide changes following energy price subsidies can be calculated.<sup>8</sup> It is worth emphasizing that the analysis draws from the distribution of consumption and spending reported in the 2010 Household Budget and Expenditure Survey (that is the reference year). The 2010 structures of consumption and spending are then updated to (January) 2014 using growth rates, population growth, and CPI. It is on those distributions that simulations of a hypothetical reform in 2014 are conducted, as explained above. In other words, the distributive effects of the 2014 reform are applied to the households—and their consumption patterns— existing in 2014. Therefore, the analysis assumes that consumption patterns and their drivers (such as preferences) in 2010 are a good proxy for 2014 consumption patterns. Finally, poverty status is defined in this exercise around the official poverty lines established by INS, BAD, and World Bank (2012) as the monetized cost of a food basket that ensures minimum caloric needs, further adjusted by nonfood needs.<sup>9</sup>

# **5.3. Spending and Consumption Impacts**

Applying the above methodology, table 10a presents the monetary impact of price increases resulting from the removal of subsidies for gasoline, LPG and diesel, and the partial reduction in electricity subsidies. Final results from this simulation are disaggregated between direct and indirect effects. The average _total_ impact of this set of interventions on per capita terms is TND 109. The largest effect on consumption comes from the removal of LPG subsidies, followed by diesel, electricity, and gasoline. In effect, about 62% of all the reduction in consumption comes from the elimination of LPG subsidies (Table 10a).

> 8 Due to limits on space, the full set of results is not presented here, but is available from the authors upon request. 9 The monetary cost of the food basket defines the extreme poverty line. This line is also adjusted by differences in cost of living for cities ( _grandes villes_ ), medium-sized towns ( _petites communes_ ), and rural areas ( _zones noncommunales_ ). The extreme poverty line based on food needs is further adjusted by adding the average spending of extreme poor households on nonfood items to come up with a “low” poverty line, and by adding the average spending of non-extreme-poor households on nonfood items for setting the “high” poverty line. This exercise uses the upper poverty lines. INS, BAD, and World Bank (2012) provide a detailed description of the construction of the total consumption aggregate.

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