Abstract
This chapter discusses the consequences of changes in subsidy policy. The recent analyses of subsidy policies using a general equilibrium model have stressed the deflationary effects of reductions in food subsidies. These results are obtained when the policy change consists of an increase in the prices at which the rationed and subsidized goods are sold. When the policy change is a decrease in the amounts made available, the overall and sectoral effects can be different and may, in the aggregate, be stimulating. The different results are a consequence of a domestic supply response to decreases in the subsidized supply of imports. It may be inferred that there would be analogous reactions to a decrease in subsidies resulting from an increase in selling price, if the price increase is sufficient to decrease, if not eliminate, the need for rationing.
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