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Innocenti Working Papers

The UNICEF Innocenti Research Centre (IRC) was created to strengthen UNICEF's research capability and to support its advocacy for children worldwide. The Working Papers (formerly Innocenti Occasional Papers), are the foundation of the Centre's research output, underpinning many of the Centre's other publications. These high quality research papers are aimed at an academic and well-informed audience, contributing to ongoing discussion on a wide range of child-related issues.

English

Estimating the Welfare Costs of Reforming the Iraq Public Distribution System

A Mixed Demand Approach

Iraq’s public distribution system (PDS) is the only universal non-contributory social transfer system in the world. Through three decades of conflict and fragility, food rations delivered through the PDS have remained the single largest safety net among Iraq’s population. Reforming the PDS continues to be politically challenging, notwithstanding its heavy dependence on imports and associated economic distortions as well as an unsustainable fiscal burden. The fiscal crisis since mid-2014 has, however, put PDS reform back on the agenda. In this context, this paper employs a mixed demand approach to analyse consumption patterns in Iraqi households and quantify the welfare impact of a potential reform of the PDS in urban areas. The results of the ex ante simulations show that household consumption of PDS items is relatively inelastic to changes in price, particularly among the poorest quintiles, and that these goods are normal goods. Cross-sectional comparisons suggest that, with improvements in welfare, and with well-functioning markets, some segments of the population are substituting away from the PDS and increasing their consumption of market substitutes. Overall, the results suggest that any one-shot reform will have adverse and sizeable welfare impacts. The removal of all subsidies in urban areas will require compensating poor households by 74 per cent of their expenditures and the richest households by nearly 40 per cent to keep welfare constant. However, a targeted removal of the top 4 deciles from PDS eligibility in urban areas will leave poverty rates unaffected and generate cost savings, but will need to be carefully communicated and managed to counter public discontent.

English

Keywords: Iraq, demand analysis, food subsidy, reform, Public Distribution System, Mixed Demand Approach, quota, welfare
JEL: O53: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Economywide Country Studies: Asia including Middle East; D12: Microeconomics / Household Behavior and Family Economics / Consumer Economics: Empirical Analysis; H53: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Welfare Programs; I38: Health, Education, and Welfare / Welfare, Well-Being, and Poverty / Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs; D39: Microeconomics / Distribution / Distribution: Other; O12: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Microeconomic Analyses of Economic Development
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