little diesel that they are virtually unaffected directly. Any impact from higher diesel prices arrives indirectly through an increase in the price of the household consumption basket.

Within gasoline, the relative weight of indirect effects is also different across quintiles. The total indirect effect of the gasoline subsidy removal falls from about a third of total effects in the first quintile to about 12 percent for the upper quintile. This is understandable as the upper quintile spends over 10 times as much on gasoline directly as does the poorest quintile (see figure 3 above).

**-** **<u>Table 19. Jordan: Direct and indirect impacts on well being of removing petroleum subsidies.</u>**

|Quintiles||Diesel|||Gasoline||
|---|---|---|---|---|---|---|
||total direct<br>(JD)|total<br>indirect<br>(JD)|share of<br>indirect in<br>total|total direct<br>(JD)|total<br>indirect<br>(JD)|share of<br>indirect in<br>total|
|Quintile 1|0|3|100%|2|0.9|30%|
|Quintile 2|0|5|100%|6|1|17%|
|Quintile 3|0|6|100%|10|2|14%|
|Quintile 4|0|8|100%|15|2|12%|
|Quintile 5|9|13|60%|27|4|12%|
|Total|2|7|77%|12|2|14%|
|Source:Authors’calcu|lations based onextrap|olatedHEIS|2010 data and|the Jordan 201|0Input/Outp|ut table.|

# **4.2 Electricity**

The simulations for indirect effects of electricity subsidy removal, similar to the petroleum product subsidy reform, were carried out by linking the Jordanian I/O table to the HIES data.<sup>11</sup> In average magnitude, the producer price shocks in the electricity sector are equivalent to a household-consumption-weighted average of the household price shocks (table 12).<sup>12</sup> Simulation results indicate that the indirect effects of electricity price changes vary significantly by household rank (table 20). In absolute magnitude (i.e., in terms of JDs), the indirect effects are approximately 5 times greater for the upper quintile than for the poorest quintile. This is primarily because richer households have consumption baskets weighted more heavily with non-food goods and services, production of which is electricity-intensive. Poorer households, in contrast, have consumption baskets weighted towards food, the production of which is not as electricity-intensive.

Results also indicate that the relation between direct and indirect effects varies significantly by the electricity subsidy elimination scenario. For example, in Scenario 2.I, indirect effects are about a third of the total for the poorest households and close to half of the total for the richest households. In Scenario 2.I, households consuming the highest electricity volumes see the smallest relative post-reform electricity price increases so it makes sense that the direct effect rises slowly across expenditure quintiles. In Scenario 3 price increases are higher for higher volume users (upper quintiles), so the quintile-wise relationship between direct and indirect effects is reversed: direct effects rise more quickly across expenditure levels

> 11 The indirect impacts on households of these price changes are calculated holding all other controlled producer prices fixed.

> 12 See Table A3 and accompanying text in the box 1 in the annex for more details on the construction of the blockand consumption-weighted average electricity tariffs.

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