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Food Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries

Development Policy Review 31(3), pp 273-290, 2013

24 Pages Posted: 1 Apr 2011 Last revised: 20 May 2013

Marga Peeters

De Nederlandsche Bank

Ronald M. Albers

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Date Written: March 20, 2012

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.

Keywords: food prices, energy prices, fiscal policy, government subsidies

JEL Classification: E31, E62

Suggested Citation

Peeters, Marga and Albers, Ronald M., Food Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries (March 20, 2012). Development Policy Review 31(3), pp 273-290, 2013. Available at SSRN: https://ssrn.com/abstract=1797044 or http://dx.doi.org/10.2139/ssrn.1797044

Marga Peeters (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Ronald M. Albers

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

Office BU-10/200
B-1049 Brussels, Bruxelles
Belgium

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