Residential Electricity Subsidies in Mexico : Exploring Options for Reform and for Enhancing the Impact on the Poor

This report addresses a pressing issue in Mexico's electricity sector the large and growing subsidies to residential consumers and their regressive incidence across different segments of the population. It responds to requests from the Ministry of Energy to provide a preliminary assessment of alternatives to the current subsidy system, building on prior collaboration between the Government of Mexico and the World Bank on the distributional impact of public spending, the performance of conditional cash transfer programs and other poverty-targeted programs, and related work on pricing and subsidies for infrastructure services. This study was designed as the first phase of a multiphase program of collaborative analytical work. This first phase provides estimates of the distributional and fiscal performance of alternative subsidy targeting mechanisms to help inform discussion and deliberations on feasible goals and practical approaches over the medium term. A second phase will address transition paths, specific compensatory mechanisms, and decision processes for pursuing the options that the Mexican authorities deem most promising.