Redistributive impact of increasing block residential water rates: some empirical evidence from Mauritius

This paper presents empirical results on progressive incidence of water charges that contradict conventional wisdom in developing and many developed countries. Family size in Mauritius is larger among high-income categories relative to low-income groups. Because of this unusual demographic dimension, increasing block tariffs coupled with lifeline rates below long-term marginal costs applicable to low-volume users produce a different result. Regional disparities in water demand among residential users further contribute to a redistributive strategy. It is interesting to note that extensive metering in urban and rural areas allows low-income consumers to end up in low-rate blocks. Empirical estimates of price, income and household size elasticities for different income categories reveal that low-income households face more than average price elasticity of demand for water and less than average income and household size elasticity. In the light of these results, it has been established that increase in demand for water among richer households has the potential of improving equity in water charges. Computed marginal budget shares derived from a linear expenditure system show that the amount of supernumerary income would be higher for richer people, so that a percentage increase in income may result in higher level spending on water when compared to lower-income households.