Input–output modelling of the effect of implicit subsidies on general prices

Abstract

Implicit subsidies are implemented for different reasons in many countries. These subsidies generally emerge through selling public resources such as gas, oil, and water at a lower price to one or more sectors. They are not considered in government payments and national accounts. Hence, it is expected that any change in the size of these subsidies influences the price of the relative sectors through the intermediate expenditures. This paper aims at developing the Table Adjusting Price (TAP) and Standard Leontief Price (SLP) models to measure the effect of an exogenous change in the size of implicit subsidy on the price indices of all sectors. The proposed models allowed the researcher to analyse a change in the level of implicit subsidy in different cases. In addition, an empirical example illustrates the result of the implementation of these models.