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Expenditure responses, policy interventions and heterogeneous welfare effects in Hungary during the 2000s

Zsombor Cseres-Gergely (), György Molnár () and Tibor Szabo
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Tibor Szabo: Credit Risk Modeler at Raiffeisen Bank

No 1704, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: VAT rates have changed multiple times and to a relatively great extent in Hungary during the past years. We use the resulting price changes in estimating the price- and income-elasticity of households’ expenditures. As a novelty, we introduce an interaction term in estimating the demand system and show that the own price elasticity of food is increasing with increasing production for own consumption. Based on the estimation results, we compute the average welfare effect of the changes and describe also its heterogeneity within the population. We find that the VAT-reforms in 2006 and 2009 have both decreased the welfare of those in the first income quintile. We also look at the welfare effect of multiple hypothetic reforms such as the decrease of the VAT rate of food and a decrease of utility prices as well as a subsidy to production for own consumption. We find that the best targeted measure is an income-transfer to the low-income unemployed either directly or through participation in the public works scheme.

Keywords: QUAIDS model; household expenditures; consumer behaviour; compensating variation; simulation; welfare effect; production for own consumption (search for similar items in EconPapers)
JEL-codes: D12 H20 H31 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017-01
New Economics Papers: this item is included in nep-agr, nep-eur, nep-pbe and nep-tra
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