Welfare implications of a tax on electricity: A semi-parametric specification of the incomplete EASI demand system

We perform a welfare analysis due to a tax on electricity consumption based on the incomplete exact affine Stone index (EASI) model using a novel data set in the Colombian economy. We provide a novel inferential framework based on a non-parametric specification of the stochastic errors using Dirichlet processes mixtures that allows handling non -normal errors, gaining efficiency, and taking into account, microeconomic restrictions, censoring, simultaneous endogeneity and non-linearity. We find that there is a 95% probability that the equivalent variation of the representative household is between US cent 34.1 and US cent 34.3, given an approximately 0.8% tariff increase (US cent 0.12 per kWh). In addition, we observe that the welfare loss of the representative household of the lowest socioeconomic characteristics is approximately twice the loss of the representative household of the highest socioeconomic characteristics.