- Juan Cordoba, Robert Gillingham, Sanjeev Gupta, Ali Mansoor, Christian Schiller, and Marijn Verhoeven
- Published Date:
- December 2000
© 2000 International Monetary Fund
Production: IMF Graphics Section
Cover design: Sanaa Elaroussi
Typesetting: Alicia Etchebarne-Bourdin
Library of Congress Cataloging-in-Publication Data
Equity and efficiency in the reform of price subsidies: a guide for policymakers/Sanjeev Gupta … [et al.].
Includes bibliographical references and index.
1. Subsidies. 2. Policy sciences. I. Gupta, Sanjeev. II. International Monetary Fund.
HC79.S9 E68 2000
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- 1. Overview
- 2. Economic Issues in the Reform of Price Subsidies
- 3. Checklist of Economic Considerations in Price-Subsidy Reform
- 4. Political Considerations
- 5. Key Lessons
- 1. List of Examined Countries
- 2. The Nature of Price Subsidies
- 3. Examining the Short-Term Impact of Reducing Price Subsidies on Real Household Incomes: An Illustration
- Text Boxes
- 1. Speed of Subsidy Reform: Country Experience
- 2. Ukraine: Targeting of Housing and Communal Services Subsidy
- 3. Successful Price-Subsidy Reforms
- 4. Subsidy Reform and Civil Unrest
- 1. Stylized Options for Targeting
- Index Guide to Concepts and Issues
The reform of price subsidies may be necessary not only to improve efficiency, but also to facilitate pro-poor economic growth and release resources for critical social services for the poor. At the same time, increases in prices for basic commodities and petroleum products can be associated with real income losses for the poor as well as political unrest in some cases. This guide provides guidance to policymakers on how to design and implement sound price-subsidy reforms that take into account both economic and social considerations.
This guide draws on the experience with the reform of price subsidies in 28 countries. It discusses economic and political considerations in price-subsidy reform and makes several recommendations concerning the speed of reform and social protection mechanisms. Rapid reform requires a favorable political and economic environment. In the absence of this, reform should be implemented gradually. The social impact of reform can be limited by establishing cost-effective and well-targeted temporary social protection mechanisms. Governments can reduce the risk of political disruption by distributing the initial burden of reform fairly and by clearly explaining the cost and benefits to the public.
The authors would like to thank Stanley Fischer, Vito Tanzi, Peter Heller, and Ke-young Chu as well as staff of various IMF departments for helpful comments on earlier versions. Administrative support was ably provided by Cecilia Pineda, Larry Hartwig, and Amy Deigh. David Driscoll of the IMF’s External Relations Department edited the manuscript and Gail Berre coordinated production of the publication.