Removing Price Subsidies and Impacts on Consumption and Production Patterns: Evidence From a Systematic Literature Review

Abstract

Due to the increasing trend in prices for food and energy products in global markets, subsidy removal and complementary policies have received significant attention in recent years. Critics of subsidy removal express concerns about the potential negative effects on the economy, including impacts on GDP, employment, household welfare, and production sectors. This has led to worries among majority economic policy-making bodies regarding potential social unrest, particularly its impact on low-income households. Therefore, there exists a debate in the literature on the potential impacts of subsidy removal. This study aims to provide a comprehensive overview of the impacts of subsidy removal policies and related subjects using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA). The main research question is, ‘Do subsidy removal schemes necessarily lead to economic distortions?’ The results indicate that impacts on the economy and household indicators are more explored than the influences on government and industry. The magnitude of these impacts varies depending on the types of subsidies and the extent of subsidy reduction. Considerable attention has been given to the impact of energy subsidy removal in Asian developing countries, while there is a lack of studies on other subsidized products and developed countries. Governments are advised to investigate their unique internal policy dynamics while considering external environments.