Food Subsidies and State Policies in Egypt

Abstract

The principal government expenditure on food subsidies comes from the subsidy on coarse and refined flour and bread. Few developing countries allow food prices to be determined by unhindered market forces. For most families, goods available through the ration system are inframarginal; the majority of families make additional purchases at the cooperatives or the higher-priced open market. The state needs revenues for investment as well as current expenses, and there is no inherent difference between the concept of agricultural taxation and general taxation. Pricing policies are only a partial explanation for virtual agricultural stagnation in Egypt. The macro economic effects will be illustrated with the results of econometric studies which link such policies to foreign trade and domestic inflation. The theme of social contract can be viewed in terms of maintaining the state’s legitimacy. States in transition face legitimacy crises as new coalitions form.