Full-text versions (or, in some cases, detailed summaries) of books published by the IMF are available online at the IMF Publications website, http://www.imf.org/external/pubind.htm.

Abstract

Full-text versions (or, in some cases, detailed summaries) of books published by the IMF are available online at the IMF Publications website, http://www.imf.org/external/pubind.htm.

Full-text versions (or, in some cases, detailed summaries) of books published by the IMF are available online at the IMF Publications website, http://www.imf.org/external/pubind.htm.

Equity and Efficiency in the Reform of Price Subsidies: A Guide for Policymakers

Sanjeev Gupta, Marijn Verhoeven, Robert Gillingham, Christian Schiller, Ali Mansoor, and Juan Pablo Cordoba

Price-subsidy reform, when it is done well, can release resources for social services, improve efficiency, and facilitate economic growth for the poor. Price increases, however, can also result in income losses for the poor and, in some cases, lead to political unrest. This guide draws on the experiences in 28 countries to advise policymakers on how to design price-subsidy reforms. It discusses economic and political considerations and makes recommendations concerning the speed of reforms and social protection mechanisms.

The guide finds that large budgetary savings from price-subsidy reforms are difficult to achieve in the short run and that rapid reform has been the exception in the cases reviewed. Mechanisms for protecting the poor should be established before reforms are initiated and should be temporary. The risk of political disruption is highest when rapid reform is attempted without social protection mechanisms and when the government is unpopular. This risk can be minimized by distributing the initial burdens of reform fairly and by clearly explaining the cost and benefits to the public.