Food Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries
De Nederlandsche Bank
Ronald M. Albers
European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)
March 20, 2012
Development Policy Review 31(3), pp 273-290, 2013
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.
Number of Pages in PDF File: 24
Keywords: food prices, energy prices, fiscal policy, government subsidies
JEL Classification: E31, E62
Date posted: April 1, 2011 ; Last revised: May 20, 2013
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