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Food Price Changes and Consumer Welfare in Tanzania 1991 – 2007

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  • Vincent Leyaro
  • Oliver Morrissey
  • Trudy Owens

Abstract

This paper analyses the effect of food price changes on household consumption (welfare) in Tanzania during the 1990s and 2000s, and simulates the welfare effect attributable to tax (tariffs and VAT) reforms, distinguishing both static (first order) and dynamic (full price) effects of price changes. The three rounds of the Tanzania Household Budget Survey (1991/92, 2000/01 and 2007) are used to estimate consumers’ responses using Deaton’s method, based on median unit values (prices) and household budget shares. These are then utilized, first to evaluate the distributional impacts of the relative food price changes on consumer welfare in terms of compensating variation and secondly to organise the households into quintiles to simulate the effect of indirect (tariffs and VAT) tax changes on consumer welfare. The results indicate that, in real terms, price increases have worsened the welfare of most consumers during the 1990s and 2000s; the poor, in particular the rural poor, bore much of the brunt compared to the non-poor (in particular the urban non-poor). The welfare losses in the 2000s were greater than those in the 1990s. Although we cannot establish explicit links between tax reforms and domestic food price changes, the simulation shows that tax reforms tended to offset the welfare losses for all household groups. However, the non-poor and urban poor benefit more in relative terms from tax reforms; the rural poor benefit least (and to the extent that pass through is incomplete we overstate the benefit to rural households).

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Paper provided by University of Nottingham, CREDIT in its series Discussion Papers with number 10/01.

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Handle: RePEc:not:notcre:10/01

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Keywords: Price Changes; Consumer Welfare; Tariff Reforms; Tanzania;

References

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  1. Petia Topalova, 2005. "Trade Liberalization, Poverty, and Inequality: Evidence from Indian Districts," NBER Working Papers 11614, National Bureau of Economic Research, Inc.
  2. Barraud, Ariel A. & Calfat, Germán, 2005. "Poverty Effects from Trade Liberalisation in Argentina," IOB Discussion Papers, Universiteit Antwerpen, Institute of Development Policy and Management (IOB) 2005.04, Universiteit Antwerpen, Institute of Development Policy and Management (IOB).
  3. Garcia, Jaume & Labeaga, Jose M, 1996. "Alternative Approaches to Modelling Zero Expenditure: An Application to Spanish Demand for Tobacco," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 58(3), pages 489-506, August.
  4. Minot, Nicholas & Goletti, Francesco, 2000. "Rice market liberalization and poverty in Viet Nam:," Research reports, International Food Policy Research Institute (IFPRI) 114, International Food Policy Research Institute (IFPRI).
  5. Guido G. Porto, 2003. "Using survey data to assess the distributional effects of trade policy," Policy Research Working Paper Series, The World Bank 3137, The World Bank.
  6. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, Elsevier, vol. 89(4), pages 599-623, April.
  7. Stefan Dercon & Bart Capeau, 1998. "Prices,local measurement units and subsistence consumption in rural surveys: an econometric approach with an application to Ethiopia," Economics Series Working Papers, University of Oxford, Department of Economics WPS/1998-10, University of Oxford, Department of Economics.
  8. Nicita, Alessandro, 2004. "Who benefited from trade liberalization in Mexico? Measuring the effects on household welfare," Policy Research Working Paper Series, The World Bank 3265, The World Bank.
  9. Sarris, Alexander H. & Tinios, Platon, 1995. "Consumption and poverty in Tanzania in 1976 and 1991: A comparison using survey data," World Development, Elsevier, Elsevier, vol. 23(8), pages 1401-1419, August.
  10. Edmonds, Eric V., 2008. "Child Labor," Handbook of Development Economics, Elsevier, Elsevier.
  11. Abdulai, Awudu & Aubert, Dominique, 2004. "A cross-section analysis of household demand for food and nutrients in Tanzania," Agricultural Economics, Blackwell, Blackwell, vol. 31(1), pages 67-79, July.
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Cited by:
  1. Elizabeth Jane Casabianca, 2012. "Distributional effects of preferential and multilateral trade liberalization: the case of Paraguay," FIW Working Paper series, FIW 083, FIW.
  2. Vincent Leyaro & Oliver Morrissey, . "Protection and the Determinants of Household Income in Tanzania 1991 – 2007," Discussion Papers, University of Nottingham, CREDIT 10/03, University of Nottingham, CREDIT.

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