Third, the failed attempt in the early 1980s and the lack of legitimacy of the previous authoritarian regime made an overhaul of subsidies difficult. The generous subsidy system combined with mass recruitment in the public service and periodic revisions of wages were the main mechanisms for maintaining, at least partially, social peace and stability during the past regime. Similarly, the need to maintain social stability in the onset of the post-revolution period also warned against a profound reform of the subsidy system, even though a national consensus in the face of the economic difficulties of 2011 emerged on the need to streamline subsidies’ costs and ensure their fairness.

Finally, there has been the traditional lack of reliable and transparent estimates of the budgetary costs of subsidies. This further complicates the technical aspects of reforms, particularly, a wellinformed design of in-depth reform measures. For example, the actual budgetary cost (explicit subsidy) and the cost of inefficiency of refiners and electricity companies (implicit subsidies) are difficult to accurately estimate. According to the World Bank (2013), implicit taxes from the generalized practice of the national oil company selling imported crude oil and natural gas at a fraction of international prices to state-owned companies may have exceeded 2 percentage points of GDP in 2012.

In this complex interplay of economic, fiscal, social, and political economy considerations, there is broad agreement on the need to reform the current system of energy subsidies. The next section provides a detailed outline of the current price, consumption, and subsidy structure.

# **3. The Current Structure of Energy Subsidies in Tunisia**

This analysis focuses on residential energy subsidies, that is, subsidies on electricity, gasoline, LPG, and diesel. As already noted, they constitute the lion’s share of the total consumer subsidies funded by the government of Tunisia (two-thirds in 2013), and about 45% of the total consumption of energy among Tunisian households. These four energy subsidies are also among those that the government plans to reform.

The analysis will simulate the fiscal and distributive effects caused by changes in the current structure of energy prices and subsidies. The current structure was introduced in May 2014 and continues to be in effect at the time of this paper. However, the analysis uses consumption patterns in 2010 as reference. This is because the latest household survey reporting households’ energy spending—the 2010 _Enquête Nationale sur le Budget, la Consommation et les Conditions de Vie des Ménages_ (ENBCV)—is available. The latest input–output matrix (I/O) for Tunisia is also available for 2010. This I/O matrix enables estimation of the indirect effects of the reforms, that is, the effects on household consumption and spending accruing from the impacts that energy prices have on other productive sectors of the economy.

Household spending on energy and other products is then updated using successive rates of the annual Consumer Price Index (CPI), GDP and population growth to construct a distribution of energy spending for (January) 2014. The current energy tariff structures are applied to that distribution of household _spending_ on energy to derive a distribution of household _consumption_ 7