Working Paper Series – Arab Planning Institute – A Welfare Analysis of the Price System Reforms’ Effects on Poverty in Tunisia: Sami Bibi.

A Welfare Analysis of the Price System Reforms’ Effects on Poverty in Tunisia

Sami Bibi

1999

Throughout the 1980s, the Tunisian economy has faced a deterioration of its external and internal deficits. The reason behind such deterioration may be partly attributed to the rapid consumption growth and to the subsidization of consumer prices which has been the main cause of the budgetary deficit. This situation led the government to adopt the structural adjustment plan proposed by the International Monetary Fund in 1986.
This plan involved reforms aimed at the restructuring of the economy so as to enhance the traded goods sector, the rehabilitation of market mechanisms and the encouragement of private initiatives. These objectives were to be accomplished partly through the liberalization of the price system and through a fiscal reform with mainly the institution of the added tax in July 1988. The goal of these reforms was to promote a sustainable economic growth without internal and external deficit deterioration. Nevertheless, macro-economic adjustment programs have often raised anxiety concerning their effects on poor population. The welfare reforms’ effects on poor population have then to be evaluated. It is necessary to analyze the microeconomic implications of these macroeconomic reforms to be able to target correctly those social categories that need protection and identify the social measures that would have to accompany such reforms.
The aim of this paper is to propose a methodology, consistent with the consumer theory, that allows the evaluation of the implications of the price system reforms on the poor population’s welfare. This issue poses an identification and a measure problem. It also delves on the poverty line estimation, using a utilitarian approach and the definition of the poor population welfare measures, that allow the assessment of social loss subsequent to the presence of poor people having an income level inferior to the poverty line. Welfare measures advocated in this paper are based on King’s approach (1983). This approach presents the advantage of 180 Building and Sustaining the Capacity for Social Policy Reforms considering the households’ reaction to price system reforms. It is based on the estimation of a demand system that has to respect economic consumer axioms. A methodology is presented allowing to estimate parameters of a flexible demand system, as the QAIDS system of Banks et al. (1993). The parameters estimation of this model have been made possible using the National Statistic Institute households’ budget and consumption survey of 1990. The simulation of a price system reform’s effects on the poor population and the identification of target groups is addressed. Within the framework of this section, a hypothetical reform is considered consisting of eliminating the budget devoted to food subsidies.
The impact of this reform on the poor population welfare is examined and the possibility of reallocating a part of this budget to better tackle the poverty issue in Tunisia. Socio-demographic indicators are defined which are likely to lead to a better targeting of the poor populations. Such targeting would make it possible to reduce public expenditures and also to improve the well-being of these target groups.

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