Progressive Public Utility Rates as an Income Redistribution Device in Developing Countries: the Case of Municipal Water.
The utilisation of progressive rate structures as an income redistribution device rests upon two apparently reasonable assumptions, which are examined here. First, there is a perceived positive income-elasticity of demand for water, electricity, and telephone service, which implies that the 'taxable base' increases with income. Second, the priceelasticity of demand for utilities is perceived as close to zero, especially at the high income levels. This assumption implies that the 'tax' on utility consumption is not easily shifted from consumer to producer. Granted these assumptions, progressive rates engender a cross-subsidisation of consumers, which permits the poor to receive such 'necessities' as water ·Professor and Head, Graduate Program in Political Economy, University of Texas at Dallas.