THE EFFECTS OF ENERGY TAXES ON THE KENYAN ECONOMY - A CGE ANALYSIS

The paper utilizes a computable general equilibrium model to evaluate the impact of the second oil price shock and consequent energy tax policies on the Kenyan economy. Simulations show that dramatic change in energy prices and consequent changes in domestic energy consumption generate sequential feedbacks in the production process and affect economic structures. Terms of trade deteriorate; the balance of payments deficit increases and national income falls. Energy import tariffs and a sales tax are effective policy instruments in controlling energy consumption and increasing government revenue. Both energy policies have net negative effects on other economic activities similar to those observed under the oil price shock. As long as there are no other economically feasible sources of energy supplies, there are economic losses associated with less petroleum product consumption in a net oil importing developing economy with oil intensive production technology.