Water Price and Water Sectoral Reallocation in Andalusia. A Computable General Equilibrium Approach

Abstract

The objective of this paper is to analyze the effects that an increase in the price of water delivered to the agriculture sector to promote the conservation of this resource would have on the efficiency of the consumption and the possible reallocation of water to the remaining productive sectors. The analysis is motivated by the fact that agriculture consumes a disproportionately large amount of water at very low prices – subsidized. The methodology that is used to explore the implications on the economy is a computable general equilibrium model (CGE), previously designed for an analysis of the direct taxes of the Andalusian economy (Cardenete and Sancho, 2003), but now enhanced and extended to include emissions of pollutants and the introduction of environmental taxes (André, Cardenete and Velázquez, 2005). This model has been further modified to introduce the variations in the water price that the authors will try to analyze by means of a tariff applied on the production structure. The main conclusion drawn indicates that, although the tax policy applied does not correspond to a significant water saving in the above-mentioned sector, a reallocation of this resource is achieved which seems to generate a more efficient and more rational behavior from a production point of view.