IDEAS home Printed from https://ideas.repec.org/p/fpr/tmddps/5.html
   My bibliography  Save this paper

Macro and micro effects of subsidy cuts: a short-run CGE analysis for Egypt

Author

Listed:
  • Lofgren, Hans

Abstract

Using a Computable General Equilibrium model for Egypt based on data for 1991/92, this paper analyzes the short-run impact of removing price-distorting subsidies for oil products sold domestically and for commodities covered by the consumer subsidy program. The model merges neoclassical and structuralist features. Two sets of simulations are conducted. The first involves raising the price of domestic oil products to international levels; the second simulates the impact of removing consumer subsidies. Each policy gives rise to an increase in government savings. The analysis is focused on imposing alternative macro closures in order to explore trade-offs between alternative uses for these savings: foreign debt repayment (adding to Egypt's net foreign assets), domestic investment, and government transfers to the households. The results indicate that both policies are contractionary, across all macro closures. The strongest fall in real GDP and other indicators resulted from paying back foreign debt. For the other two cases, the savings were used in a manner which simulated the domestic economy, with a trade-off between investing and improving current household conditions. On the micro level, the oil policy simulations showed a decline in domestic oil use by 6-8 percent (with an accompanying reduction in air pollution) and larger exports. For the consumer subsidy cut, the household consumption fall was relatively limited for food due to low income and price elasticities; most of the consumption cut affected other industrial goods and services. Sensitivity analysis suggested that one structuralist feature mark-up pricing and excess capacity in much of the economy had a strong impact on the results; when profit maximization and no excess capacity was assumed for most sectors, the changes in real GDP and other variables were much smaller.

Suggested Citation

  • Lofgren, Hans, 1995. "Macro and micro effects of subsidy cuts: a short-run CGE analysis for Egypt," TMD discussion papers 5, International Food Policy Research Institute (IFPRI).
  • Handle: RePEc:fpr:tmddps:5
    as

    Download full text from publisher

    File URL: http://www.ifpri.org/sites/default/files/publications/tmdp05.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tooraj Jamasb & Rabindra Nepal & Govinda Timilsina & Michael Toman, 2014. "Energy Sector Reform, Economic Efficiency and Poverty Reduction," Discussion Papers Series 529, School of Economics, University of Queensland, Australia.
    2. repec:aen:journl:ej38-3-jamasb is not listed on IDEAS
    3. Jamasb,Tooraj & Nepal,Rabindra & Timilsina,Govinda R., 2015. "A quarter century effort yet to come of age : a survey of power sector reforms in developing countries," Policy Research Working Paper Series 7330, The World Bank.
    4. Coady, David & Parry, Ian & Sears, Louis & Shang, Baoping, 2017. "How Large Are Global Fossil Fuel Subsidies?," World Development, Elsevier, vol. 91(C), pages 11-27.
    5. Hassanain, Khalifa, 1997. "External shocks and the real exchange rate: a simulation model for Egypt," ISU General Staff Papers 1997010108000012989, Iowa State University, Department of Economics.
    6. Kherallah, Mylene & Lofgren, Hans & Gruhn, Peter & Reeder, Meyra M., 2000. "Wheat policy reform in Egypt: adjustment of local markets and options for future reforms," Research reports 115, International Food Policy Research Institute (IFPRI).
    7. Wang, Yanxiang & Ali Almazrooei, Shaikha & Kapsalyamova, Zhanna & Diabat, Ali & Tsai, I-Tsung, 2016. "Utility subsidy reform in Abu Dhabi: A review and a Computable General Equilibrium analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 1352-1362.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fpr:tmddps:5. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/ifprius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.