MPRA_paper_99070.pdf - Munich Personal RePEc Archive Is the elimination of food subsidies the right policy to address Lebanon\u2019s public finance crisis

MPRA_paper_99070.pdf - Munich Personal RePEc Archive Is the...

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Munich Personal RePEc Archive Is the elimination of food subsidies the right policy to address Lebanon’s public finance crisis? Makdissi, Paul and Seif Edine, Mohamad University of Ottawa 1 March 2020 Online at MPRA Paper No. 99070, posted 27 Mar 2020 07:54 UTC
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Is the elimination of food subsidies the right policy to address Lebanon’s public finance crisis? Paul Makdissi Mohamad Seif Edine March 2020 Abstract In this paper, we use a positional dominance approach to assess the desirability of eliminating food subsidies in Lebanon. The analysis is based on aggregate information from the 2004/2005 National Survey of Households Living Conditions. We use this aggregate information on expenditure patterns to reconstruct rough estimates of s - concentration curves and efficiency-cost ratio sets. Evidences suggest that the Lebanese government should probably find other avenues to reduce the fiscal deficit. Keywords: Taxation, inequality, Lebanon JEL Codes: H23, I31 This research project was realized during Dr. Mohamad Seif Edine postdoctoral year at the University of Ottawa. Department of Economics, University of Ottawa, Canada; Email: [email protected] Budget Directorate, Ministry of Finance, Lebanon and Department of Economics, University of Ottawa, Canada; Email: [email protected] 1
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1 Introduction Lebanon is currently facing its biggest fiscal crisis since its independence. Public debt now stands at more than 150% of GDP and will continue to rise if adjustment measures are not taken quickly. Until now, the government is in discussions with the International Monetary Fund to find a way out of this crisis and probably restructure its public debt. Among the suggested solutions, the elimination of certain consumer subsidies and some value-added tax (VAT) exemptions are considered. Lebanon subsidizes flour, wheat, bread, and indirectly electricity. 1 There are VAT ex- emptions of non-processed food and diesel. 2 It is surprising that policies that would induce a sharp increase in the price of basic food items are even considered. Policymakers usually avoid such policies and typically look for policies that would mitigate the impact of increas- ing food prices. The rationale behind such hesitation can be found in Bellemare (2015). Using monthly data at the international level, Bellemare (2015) shows that rapid increases in food prices can explain the emergence of social conflict. This empirical evidence should be taken into account in the present policy discussions since ESCWA (2016) shows that a significant part of the Lebanese population suffers from food insecurity. 3 In such a context, it is essential to look for alternative sources of public finance consol- idation. The objective of this article is to propose some of these alternative avenues. We use partial information on surveys of consumer finances that we obtained from the Cen- tral Administration of Statistics of the Lebanese government and seek to identify indirect
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