Modernisation of the agricultural, industrial and household
sectors causes the demand for energy to increase more rapidly than its
supply. In countries that aim to modernise quickly a heavy investment is
required to redress this imbalance. That is why in countries such as
Pakistan, the energy has remained on the top of the agenda of loan
negotiation with international donor agencies. Energy serves as both a
final consumption good and as an essential intermediate input in the
production of goods. Thus any change in the price of energy at both
these levels affects consumption as well as production and that, in
turn, can cause changes in the prices of all other commodities. A change
in the prices of exportables affects their demand in foreign markets and
any change in the prices of import-competing and nontraded goods affects
their demand at home. The net effects of all these changes can be
measured in terms of the effects on real GDP, balance of trade, and
government revenue. And, because any change in commodity prices exerts a
negative impact on real consumption of households; the formulation of a
comprehensive energy policy requires a framework that can take the
immense complexity of the linkages of all the sectors of the economy
into consideration. In the book under review, Dr Farzana Naqvi, argues
that the issues of energy pricing can not be examined in isolation and
presents a general equilibrium framework to address the complex issues
related to energy, economy and equity.
Consumption Tax, Nontraded Goods and Welfare