Self-Targeted Subsidies: The Distributional Impact of the Egyptian Food Subsidy System

Food subsidy programs are under increasing criticism in many developing countries because of their large contributions to government budget deficits. According to critics, food subsidies pose both an unnecessary burden on the public budget and are economically inefficient because their benefits are often not received by the poor.

These critics argue that because of improper targeting, a large part of food subsidies is “leaked” to high-income people. Proponents of food subsidies argue, however, that such programs are necessary to “guarantee” the supply of basic foods to the poor. Proponents claim that since the poor spend higher proportions of their income on food than do the rich, food subsidies are needed to protect the welfare and nutritional status of the economically disadvantaged.

Paper proposes to analyze the folowing, and similar, issues within the context of Egypt

• How much do food subsidies affect the incomes and nutritional status of the poor?
• What proportion of food subsidies are leaked to non-needy groups, such as high-income consumers?
• What are the political issues involved in trying to reform food subsidy programs?

Paper extends an earlier study by the author in order to shed new light on the political and distributional impact of Egyptian food subsidies. It

• presents an overview of the role of food subsidies in developing countries
• reviews the history and operation of the food subsidy system in Egypt, paying particular attention to the 1977 food riots
• presents the details from a new, 1997 household budget survey in Egypt. This survey, which collected heretofore unavailable expenditure data on each type of subsidized food in Egypt, makes it possible to pinpoint the current distributional impact of food subsidies
• use these new survey data to analyze the impact of each subsidized food on different income groups in urban and rural areas
• presents some possible options for reforming Egyptian food subsidies