Food prices, government subsidies and fiscal balances in south Mediterranean countries

Peeters, Marga and Albers, Ronald (2011): Food prices, government subsidies and fiscal balances in south Mediterranean countries. Published in:

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: food prices; energy prices; inflation; public finances; government subsidies
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L71 - Mining, Extraction, and Refining: Hydrocarbon Fuels; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L66 - Food ; Beverages ; Cosmetics ; Tobacco ; Wine and Spirits; H - Public Economics > H2 - Taxation, Subsidies, and Revenue; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

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