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

Author

Listed:
  • Cathal O’Donoghue

    (University of Galway, Galway, Ireland)

  • Beenish Amjad

    (CEQ Institute, Tulane University, New Orleans, United States)

  • Jules Linden

    (University of Galway, Galway, Ireland; Luxembourg Institute of Socio-Economic Research (LISER), Luxembourg)

  • Nora Lustig

    (Luxembourg Institute of Socio-Economic Research (LISER), Luxembourg)

  • Denisa M Sologon

    (Luxembourg Institute of Socio-Economic Research (LISER), Luxembourg)

  • Yang Wang

    (CEQ Institute, Tulane University, New Orleans, United States)

  • Zeynep Gizem Can

    (University of Galway, Galway, Ireland)

Abstract

This paper develops 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 model 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 percent, 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 welfare losses at the bottom of the income distribution was food price inflation, while inflation in other goods and services was the biggest driver at the top. To compensate households for increased living costs, transfers would need to be on average 40 percent of pre-inflation expenditure, assuming constant incomes. Behavioural responses to price changes have a negligible impact on the overall welfare cost to households.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Cathal O’Donoghue & Beenish Amjad & Jules Linden & Nora Lustig & Denisa M Sologon & Yang Wang & Zeynep Gizem Can, 2025. "The Distributional Impact of Inflation in Pakistan: A Case Study of a New Price Focused Microsimulation Framework, PRICES," International Journal of Microsimulation, International Microsimulation Association, vol. 18(3), pages 102-131.
    • Handle: RePEc:ijm:journl:v:18:y:2025:i:3:p:102-131
    DOI: 10.34196/ijm.00327
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    2. Linden, Jules & O’Donoghue, Cathal & Sologon, Denisa M., 2024. "The many faces of carbon tax regressivity—Why carbon taxes are not always regressive for the same reason," Energy Policy, Elsevier, vol. 192(C).

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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