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Policy credibility and the political economy of reform: the case of Egypt's commodity subsidies

Published online by Cambridge University Press:  15 November 2013

DALIBOR ROHÁČ
DALIBOR ROHÁČ*
Affiliation:
Cato Institute, Washington DC, USA, and King's College London, United Kingdom
*
*Email: drohac@cato.org
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Abstract:

How can we account for the persistence of inefficient policies? To answer that question, this paper focuses on the issue of food and energy subsidies in Egypt. In 2012, over 13 percent of Egyptian GDP – roughly one-third of the overall government spending – was allocated to subsidies of prices of consumer goods including fuels and food. This paper offers an explanation of the resilience of commodity subsidies to reform, which relies on the inability of the government to credibly commit to a reform path. As a dictatorship, Egypt had a small number of veto players, making policy reversals easy. When opened to a competitive political process after 2011, Egypt lacked political groups that could make credible promises about policy changes. The paper provides a discussion of how appropriately designed reforms can mitigate the lack of credibility.

Type
Research Article
Information
Journal of Institutional Economics , Volume 10 , Issue 2 , June 2014 , pp. 311 - 335
Copyright
Copyright © Millennium Economics Ltd 2013 

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