The distributional impact of reversing a long path of energy subsidies

Reversing energy subsidies is often a complex policy challenge. One of the main concerns is its distributional impact, as these subsidies are typically justified as a means to protect the most vulnerable segments of the population. This paper examines this issue by analyzing the case of the Buenos Aires Metropolitan Area (AMBA) in Argentina, which, after decades of sizable residential energy subsidies, has begun a deliberate reduction in recent years. A key feature of this process is that it was implemented using targeting mechanisms that segment users primarily by self-reported income level. The subsidy reduction took place in a challenging macroeconomic context —characterized by currency devaluation and high inflation— which led to changes in income distribution beyond the effects of energy tariff updating. Using microdata and administrative information, we document that subsidies, which have historically been pro-rich and progressive, are now better targeted and, naturally, even more progressive. Both the user classification and the subsidy amount associated with these groupings contributed to a more progressive pattern. While the targeting mechanism has improved, the macroeconomic context has made the path toward better distributional outcomes non-linear. The lessons from Argentina may provide valuable insights for other countries facing similar policy challenges. JEL Codes: H22, D31, D78, Q48.