Analyzing the Effect of the Water Reduce Subsidies on GDP

The objective of this work is to analyze the effects of decrease in water subsidies (increase in the price of the water) on various economic sectors in order to promote the conservation of this resource based on the actual price of water. But over the past decades, various subsidizing methods hold the cost of water down. On the other hand, the indiscriminate use of these resources led the government to impose enormous costs. Determining the economic impact of subsidy reform can be an essential factor in the determination of water price reform scenarios. The methodology that will be used to explore the implications on the economy will be a computable general equilibrium model (CGE), previously designed for an analysis of the direct taxes of the Andalusian economy (Cardenete and Sancho, 2003), but now enhanced and extended to include emissions of pollutants and the introduction of environmental taxes (André, Cardenete and Velázquez, 2005). This model has been further modified to introduce the variations in the water price that this study investigates the effect of water subsidy reform on the economy based on six scenarios using computable general equilibrium model. Results show that by decreasing subsidies, GDP will reduce in all economic sectors. Government can prevent the decrease in production by redistributing incomes.