The SUBSIM Project and Beyond Paolo Verme and Abdelkrim Araar June, 11 th, 2015
This Presentation Background and motivation The SUBSIM Project: Phase I, II and III Website STATA Model Theory and empirics User manual Book Beyond SUBSIM
Backrgound
Oil Prices 1987 2012 Source: Elaborated from data available at http://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm. 160 140 120 100 80 60 40 20 0 3.5 3 2.5 2 1.5 1 0.5 0 May 1987 Mar 1988 Jan 1989 Nov 1989 Sep 1990 Jul 1991 May 1992 Mar 1993 Jan 1994 Nov 1994 Sep 1995 Jul 1996 May 1997 Mar 1998 Jan 1999 Nov 1999 Sep 2000 Jul 2001 May 2002 Mar 2003 Jan 2004 Nov 2004 Sep 2005 Jul 2006 May 2007 Mar 2008 Jan 2009 Nov 2009 Sep 2010 Jul 2011 May 2012 Mar 2013 Jan 2014 Nov 2014 Cushing, OK WTI Spot Price FOB (Dollars per Barrel) Left scale Europe Brent Spot Price FOB (Dollars per Barrel) Left scale New York Harbor Conventional Gasoline Regular Spot Price FOB (Dollars per Gallon) Right scale
Energy and Agricultural Prices (1960 2012) Source: World Bank Commodity Prices Database (Index, 2005=100) 250.00 200.00 150.00 100.00 ENERGY AGRICULTURE 50.00 0.00
Retail Prices USD January 2013 Source: Average, elaborated from Kojima (2013) Gasoline Diesel Kerosene LPG East Asia and Pacific $1.25 $1.03 $1.11 $1.20 Europe and Central Asia $1.16 $1.23 n.a. n.a. Latin America and the Caribbean $1.24 $1.14 $1.18 $1.01 South Asia $1.25 $0.91 $0.86 $1.44 Sub Saharan Africa $1.24 $1.22 $0.96 $0.97 Middle East and North Africa $0.67 $0.44 $0.41 $0.40
Why SUBSIM? 2010 2011: The World Bank MENA region receives urgent requests for assistance on subsidies reforms from, Morocco, Tunisia, Egypt, Jordan and Yemen just before the Arab spring. Iran embarks on a major subsidy reform. We review existing models/tools to simulate subsidies reforms and we review past assistance projects in the MENA region Results: The WB uses a multiplicity of models/tools (13 models reviewed), none dedicated to subsidies. The average response time is 6 8 months in the form of a report Governments interest on subsidies is cyclical and associated with oil prices. A six months response time results in a nonresponse. By the time the report is out, governments have lost interest and the WB has lost the window of opportunity to support reforms There is a need for subsidies specific tools that can provide simple simulations quickly in a consistent and accurate manner. We set up the SUBSIM project with funding from the MENA Chief Economist Office and the PSIA TF
The SUBSIM Project
The SUBSIM Project Phase I (2011 2012) We start in 2011 with the idea of preparing a basic automated micro simulation model in STATA This resulted in: SUBSIM 1.0. A STATA program providing a distributional analysis of subsidies and simulations of subsidies reforms (direct impacts on welfare, poverty and the government budget). A paper illustrating the use for practitioners: Araar, A. and Verme, P. (2012) Reforming subsidies : a tool kit for policy simulations World Bank PRWP No. 6148 The SUBSIM team starts to work with clients in collaboration with other sectors. The model is used to provide advice to the governments of Morocco (with MFM), Tunisia (with SPL), Egypt (with Energy) and Jordan (with Energy and SPL) Informal training of government staff, live simulations exercises with ministries, fine tuning of the SUBSIM model during repeated field missions Preparations of the first notes: Electricity in Jordan, Energy products in Morocco, Tunisia and Egypt. Short notes shared and discussed with Ministries to accompany the discussion on subsidies SUBSIM 1.0 generates interest but also demands for additional functions (indirect effects, compensatory cash transfers, alternative demand functions, more languages)
The SUBSIM Project Phase II (2013 2014) SUBSIM 2.0: Automation of the model, expansion of the range of simulations, simulation of compensatory cash transfers, two languages, expanded output, publication of the model on line Work in new countries (Libya and Djibouti) and continuation of Government support to Morocco, Tunisia and Jordan Growing demand from other regions (LAC, EA, SSA) and organizations (UNICEF, Ministries) Support to WB staff and increased collaborations across GPs (SPL, MFM, Water, Energy, Environment) Formal training courses to WB and Ministerial staff First publications
The SUBSIM Project PHASE III (2014 2015) SUBSIM 3.0: Indirect effects with I/O tables, more tables and graphs, improved interface User Manual Website: www.subsim.org Paper on theory and empirics of price reforms: Prices and Welfare, forthcoming, 2015 Regional Book on Subsidies: The Quest for Subsidies Reforms in the MENA Region, forthcoming, 2015
The Website www.subsim.org
The Model (Functions) Estimations: Household distributions of subsidies; Impact of subsidy reforms on household wellbeing, poverty, inequality and government revenues; Impact of compensatory cash transfers; Direct and indirect effects; Behavioral effects; Linear and non linear pricing; Linear and non linear demand schedules; Standard errors and confidence intervals based on survey designs; Options: Endogenous/exogenous and shortterm/long term indirect effects simulations; Increasing Block Tariffs (IBT), Volume Differentiated Tariffs (VDT) and mixed systems for non linear pricing systems; Cost push and marginal profit push simulations of indirect effects; Language (English or French); Outputs: Automated 22 tables and 10 figures; Customized outputs by population groups and other variables;
The Model (Example) morocco2014.dta
The Book 11 chapters, 8 case studies, 18 contributors Chapter Title Authors PART I Preface 1 The Political Economy of Subsidies Reforms Paolo Verme and Abdelkrim Araar 2 A Comparative Analysis of Subsidies Reforms Abdelkrim Araar and Paolo Verme PART II 3 Morocco Paolo Verme and Khalid El Massnaoui 4 Tunisia Jose Cuesta, AbdelRahmen El Lahga and Gabriel Lara Ibarra 5 Libya Nada Choueiri, Abdelkrim Araar, Paolo Verme 6 Egypt Sudeshna Ghosh Banerjee, Heba El Laithy, Peter Griffin, and Kieran Clarke 7 Jordan Aziz Atamanov, Jon Jellema, Umar Serajuddin 8 Djibouti Stefanie Broadmann and Harold Coulombe 9 Yemen Aziz Atamanov 10 Iran Djavad Salehi Isfahani, Mohammad Hadi Mostafavi 11 A guide to the SUBSIM model Abdelkrim Araar and Paolo Verme
Contents The User Manual Introduction... 3 Installation... 3 SUBSIM Direct Effects... 6 Tab: Main... 6 SUBSIM is an automated subsidies simulation model designed to carry out rapid distributional analysis of consumers subsidies and simulations of subsidies reforms. The model estimates the impact of subsidies reforms on household welfare, poverty and inequality and the government budget with or without compensatory cash transfers. The model can estimate direct and indirect effects using household budget survey data and input output matrixes. It can be applied to energy and food subsidies and accommodates linear and non linear pricing. It produces 22 tables and 10 graphs of standard output in English or French and allows saving input data for future reference. Tab Items... 7 Tab Tables options... 10 Tab: Graph options... 11 Examples... 13 Example 1: Linear subsidies... 13 Example 2: Non-linear subsidies... 14 Example 3: Simulation with large number of items... 16 SUBSIM Indirect Effects... 18 Data and methodology... 18 Tab Main... 19 Tab Items... 20 Example... 22 Launch SUBSIM... 26 Comparing SUBSIM Direct and SUBSIM Indirect effects... 26 Annex 1 SUBSIM Basic Formulae... 28 Changes in welfare... 28 Changes in quantities... 30 Elasticity... 30 Changes in government revenues... 32 Formulae for input-output simulations... 32
Theory and Empirics What is the welfare effect of a price change? This simple question is one of the most relevant and controversial questions in microeconomic theory and one of the main sources of errors in empirical economics. This paper returns to this question with the objective of providing a general framework for the use of theoretical contributions in empirical works. In particular, we aim to 1) Review the essential microeconomics literature since the first seminal papers by Hicks in the 1930s; 2) Organize and simplify this literature in a way that can be easily used by analysts with different backgrounds providing algebraic, geometric and computational illustrations; 3) identify and measure the essential differences across methods and test how these differences affect empirical results; 4) Provide guidelines for the use of alternative approaches under imperfect information on utility, demand systems, elasticities and more generally incomes and quantities; 5) Provide computational codes in Stata for the application of all methods. The focus of the paper is on developing economies and the poor and the assumptions made will relate primarily to these countries and group of people, presumably the main policy focus of international organizations and national governments.
Beyond SUBSIM Growing demand for subsidies simulations worldwide despite low oil prices (oil producers vs non oil producers) Growing demand for SUBSIM (GCC, Algeria, Cameroun, Armenia, South Africa) Growing demand for specific sector work (Water, Labor, Social Assistance, Macro effects) Growing demand for policy simulations instruments beyond subsidies (taxes, social protection, public expenditure) => Which way forward? SUBSIM 4.0? Sector specific instruments TAXSIM, PROTSIM? Combination with other tools? Policy LAB?