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Food prices, government subsidies and fiscal balances in south Mediterranean countries

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  • Peeters, Marga
  • Albers, Ronald

Abstract

Soaring food and energy prices sparked the revolts in Northern African countries at the end of 2010. Despite government subsidies, consumer price inflation rose, which reduced consumers’ purchasing power. This article empirically investigates the impact of world food prices on inflation and government subsidies for Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the occupied Palestinian territories and Tunisia during the ten-year period 2002-2011. Our findings show an asymmetry in the response of consumer price inflation to world food price shocks, in that soaring world food prices made inflation rise fast while nominal rigidities prevented inflation from falling. Moreover, this paper shows that government balances deteriorated up to 2% of GDP in 2008 and 2011 due to the incremental government food subsidies while they hardly improved in value terms when world food prices sharply fell in 2009.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37707.

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Date of creation: Jan 2011
Date of revision: 20 Mar 2012
Handle: RePEc:pra:mprapa:37707

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Keywords: food prices; energy prices; inflation; public finances; government subsidies;

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References

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  1. Raghbendra Jha & Raghav Gaiha & Manoj K. Pandey & Nidhi Kaicker, 2011. "Food Subsidy, Income Transfer and the Poor: A Comparative Analysis of the Public Distribution System in India's States," ASARC Working Papers 2011-16, The Australian National University, Australia South Asia Research Centre.
  2. Ronald Albers & Marga Peeters, 2011. "Food and Energy Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries," European Economy - Economic Papers 437, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Yitzhaki, Shlomo, 1990. "On the Effect of Subsidies to Basic Food Commodities in Egypt," Oxford Economic Papers, Oxford University Press, vol. 42(4), pages 772-92, October.
  4. Jongwanich, Juthathip & Park, Donghyun, 2009. "Inflation in developing Asia," Journal of Asian Economics, Elsevier, vol. 20(5), pages 507-518, September.
  5. Peeters, Marga & Strahilov, Kiril, 2008. "Macro-economic policy reactions to soaring food prices in Mediterranean countries, Russia, the CIS and the GCC," MPRA Paper 23860, University Library of Munich, Germany.
  6. Alex Segura-Ubiergo & Taline Koranchelian & Carlos Mulas-Granados, 2008. "Reforming Government Subsidies in the New Member States of the European Union," IMF Working Papers 08/165, International Monetary Fund.
  7. Juthathip Jongwanich & Donghyun Park, 2011. "Inflation in developing Asia: pass‐through from global food and oil price shocks," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 25(1), pages 79-92, 05.
  8. World Bank, 2009. "Global Economic Prospects 2009 : Commodities at the Crossroads," World Bank Publications, The World Bank, number 2581, October.
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