Leveraging Fuel Subsidy Reform for Transition in Yemen
Yemen is currently undergoing a major political transition, yet many economic challenges—including fuel subsidy reform—remain highly relevant. To inform the transition process with respect to a potential subsidy reform, we use a dynamic computable general equilibrium and microsimulation model for Yemen; we show that overall growth effects of subsidy reduction are positive in general, but poverty can increase or decrease depending on reform design. A promising strategy for a successful reform combines fuel subsidy reduction with direct income transfers to the poorest one-third of households during reform, and productivity-enhancing investment in infrastructure, plus fiscal consolidation. Public investments should be used for integrating economic spaces and restructuring of agricultural, industrial and service value chains in order to create a framework that encourages private-sector-led and job-creating growth.
References listed on IDEAS
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- Breisinger, Clemens & Ecker, Olivier & Funes, Jose & Yu, Bingxin, 2010. "Food as the basis for development and security: A strategy for Yemen," IFPRI discussion papers 1036, International Food Policy Research Institute (IFPRI).
- Ecker, Olivier & Breisinger, Clemens & McCool, Christen & Diao, Xinshen & Funes, Jose & You, Liangzhi & Yu, Bingxin, 2010. "Assessing food security in Yemen," IFPRI discussion papers 982, International Food Policy Research Institute (IFPRI).