The economic impact of higher gasoline and electricity prices in Mexico

The analysis in this study examines the impact of an increase in the prices of gasoline and electricity on the Mexican economy. The analytical approach used consists of a general equilibrium model composed of thirteen producing sectors, fourteen consuming sectors, four household categories classified by income and a government. The effects of the recently implemented increase in the price of gasoline and electricity of 26.2 per cent on prices and quantities are examined. The results are revealing. For example, the consequences of an increase in the prices of gasoline and electricity would be a decrease in output by all producing sectors of about 0.31 per cent, a fall in the consumption of goods and services by about 0.56 per cent, a reduction in total utility by 1.29 per cent and higher revenue for the government of 0.31 per cent. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities.