Heterogeneity and the Energy Consumption of Brazilian Households: A Structural Analysis

Abstract

This paper develops a structural economic model of the residential sector of an economy. The model features households that are heterogeneous with regard to their income. Given their incomes, households decide how much to spend on a plethora of different goods that use electrical energy as an input. The price of energy is non-linear and depends on one’s energy demand. The model parameters are disciplined using rich Brazilian consumption micro data at the household level. The data exhibits substantial heterogeneity of expenditures on electric appliances and energy across the different income deciles, and the model is able to capture these features. We use the calibrated model to perform a variety of counterfactuals. The results suggest that the impact of changes in prices and income varies substantially across income groups. We also study the adoption of a new technology. In particular, the introduction of more energy-efficient fluorescent light bulbs is especially helpful to poorer households, despite the bulbs’ higher cost.