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Does increasing access to infrastructure services improve the targeting performance of water subsidies?



There is ample evidence that utility subsidies imbedded in inverted block and other tariff structures are not well targeted to the poor, simply because the poor tend to have much lower access rates to water and electricity networks than richer households. This paper provides an analysis of the changes over time in the targeting performance of water consumption subsidies in Nicaragua. Becuase access rates to piped water increased substantially between 2001 and 2005, the targeting performance of consumption subsidies improved, despite the fact that the tariff structure remained essentially the same over time. It is shown that the observed changes in access rates had a much higher impact for improving the targeting performance of consumption subsidies than changes in the tariff structure could have had if they had been implemented. The results suggest that one of the best ways to improve the targeting of consumption subsidies may be to increase access rates, so that the poor have a better chance of receiving the subsidies. Copyright © 2010 John Wiley & Sons, Ltd.