Ending Food Subsidies: Nutritional, Welfare, and Budgetary Effects

Karim Laraki

The World Bank Economic Review, 1989, vol. 3, issue 3, 395-408

Abstract: Governments faced with growing budget deficits are cutting many social expenditures, including costly food subsidy that have provided benefits to the rich and poor alike. Because the poor spend a larger share of their income on food than do the rich, however, such cuts usually have negative distributional, welfare and nutritional effects. This article discusses the methodological issues in estimating the effects of price and tax reforms in developing countries. I apply a model that Deaton (1988) developed to estimate price elasticities from cross-section data, the only reliable and detailed data available in most developing countries. I use measures of both real income and nutrition to evaluate the effects of changes in the Moroccan food subsidy program. The analysis suggests that subsidies on inferior foods not consumed by the wealthy would reduce the welfare costs to the poor and limit the budgetary expenditures required. Copyright 1989 by Oxford University Press.

Date: 1989
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