Author : Christophe Muller

In this paper, the role of price deflation in estimating the impact of price subsidies and anti-poverty  cash transfer schemes on poverty in Tunisia is studied. Three types of price corrections are considered: (a) no  corrections; (b) living standards deflated by spatial Laspeyres price indices; and (c) living standards deflated  by true price indices that are estimated from a quadratic almost ideal demand system. Distinguishing these  corrections and using data from Tunisia, the effects of the price deflation and the demand system estimation  on poverty and budget leakage estimates are analyzed. These effects can intervene at two stages of the  estimation: (a) the calculation of transfer levels for each household; and (b) the estimation of post-transfer  social statistics. Results show that price correction, whatever its form, may have only limited importance  for the assessment of anti-poverty policy in Tunisia. Correcting or not for spatial price differences, or  for consumption substitution does not modify the performance ranking of the studied policies. This is  at odds with other findings in the empirical literature that price differences may be important for poverty  monitoring.

Article Published in the Journal of Development and Economic Policies