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Grupo de Estudos Monetários e Financeiros

Estudos do GEMF, N.º 17 de 2010


Water Pricing and Social Equity in Portuguese Municipalities

Rita Martins
GEMF / Faculdade de Economia, Universidade de Coimbra

Carlota Quintal
Faculdade de Economia, Universidade de Coimbra

Eduardo Barata
GEMF / Faculdade de Economia, Universidade de Coimbra

Luís Cruz

GEMF / Faculdade de Economia, Universidade de Coimbra

Water supply services are Services of General Interest (SGI), subject to specific public service obligations, such as universality, continuity, quality, affordability, transparency, and consumer protection. There is an extensive empirical literature on the design of optimal prices. However, these contributions tend to neglect the issue of universal service and equity concerning the volume of water for basic needs (the ‘essential minimum quantity’). Addressing this gap in the literature, and using empirical data for the Portuguese municipalities, this paper aims to evaluate whether income-related equity considerations are embodied in water supply Portuguese municipalities’ tariffs. Accordingly, essential minimum quantities of water for representative households are computed, and then compared with the lowest tariff block’s upper limit by water utility. Next, representative households are ranked by costs underlying essential minimum quantities and by income. This analysis also considers concentration curves and indexes which show that water bills are regressive, i.e., there is socioeconomic inequity favourable to the better-off representative households.

JEL Classification: L8; D92; G32; L00; L2.

Keywords: Water Policy, Water Pricing, Social Equity, Efficient Water Use, Portugal.

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