On the Impact of Better Targeted Transfers on Poverty in Tunisia

Abstract

This paper describes the effects of general food subsidies on poverty in Tunisia, as revealed by household survey data for 1990. The analysis indicates that the poorest certainly take advantage of this system, but at the price of considerable leakages to non-poor people and at a sizable economic efficiency loss resulting from relative price distortions. Further, nonparametric estimations suggest that there are no commodities predominantly consumed by the poor. This implies that targeting by commodities is not an effective way to fight against poverty and, thus, it is unlikely that restructuring the current scheme would improve significantly the living standards of the less well-off members of society. We then investigate the impact on poverty of a more targeted transfer scheme, based on proxy means tests, using an appropriate econometric technique for modeling. Simulations show that this design would be more effective in reducing poverty than the use of general food subsidies. Finally, dominance tests show that this design would first-order-dominate a food subsidies scheme within a range of poverty lines, including all those estimated and generally used for Tunisia.