The Distributional Impact of Inflation in Pakistan: A Case Study of a New Price Focused Microsimulation Framework, PRICES

Cathal O'Donoghue, Beenish Amjad, Jules Linden, Nora Lustig, Denisa Sologon and Yang Wang
Additional contact information
Cathal O'Donoghue: University of Galway
Beenish Amjad: World Bank
Jules Linden: CEQ Institute, Tulane University
Nora Lustig: CEQ Institute, Tulane University
Yang Wang: CEQ Institute, Tulane University

No 2501, Working Papers from Tulane University, Department of Economics

Abstract: This paper developed a microsimulation model to simulate the distributional impact of price changes using Household Budget Survey data, Income Survey data and an Input Output Model. The primary purpose is to describe the models components. The secondary purpose is to demonstrate one component of the model by assessing the distributional and welfare impact of recent price changes in Pakistan. Over the period of November 2020 to November 2022, headline inflation 41.5\%, with food and transportation prices increasing most. The analysis shows that despite large increases in energy prices, the importance of energy prices for the welfare losses due to inflation is limited because energy budget shares are small and inflation is relatively low. The overall distributional impact of recent price changes is mildly progressive, but household welfare is impacted significantly irrespective of households position along the income distribution. The biggest driver of the welfare loss at the bottom was food price inflation, while inflation in other goods and services were the biggest driver at the top of the distribution. To compensate households for increased living costs, transfers would need to be on average 40\% of pre-inflation expenditure. Behavioural responses to price changes have a negligible impact on the overall welfare cost to households.

Keywords: Inflation; Welfare impact; Carbon tax; Revenue Recycling (search for similar items in EconPapers)
Date: 2025-01
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http://repec.tulane.edu/RePEc/pdf/tul2501.pdf First Version, January 2025 (application/pdf)

Related works:
Working Paper: The Distributional Impact of Inflation in Pakistan: A Case Study of a New Price Focused Microsimulation Framework, PRICES (2025)
Working Paper: The Distributional Impact of Inflation in Pakistan: A Case Study of a New Price Focused Microsimulation Framework, PRICES (2024)
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