Uleac public policies to tackle the rising cost of living part 3

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Uleac public policies to tackle the rising cost of living part 3

  1. 1. 1Public Policies to Tackle the Rising Cost of LivingAlban THOMASToulouse School of Economics, INRA and IDEIBeirut, May 31, 2012
  2. 2. 2Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Background Economic situation is deteriorating:• Increasing and more volatile commodity prices• Dependency upon imported energy sources• Increasing housing and energy shares in household budget Role of public policies:• Limit cost of living increases, protect consumer welfare• Maintain local firms’ profitability• With a sustainable public deficit First, examine household expenditures and price increases• To determine policy targets (which goods)• and which population categories
  3. 3. 3Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Item 2003 2004 2005 2006 2007Food 3.5 3.5 3.8 8.0 11.1Tobacco 1.8 -1.8 2.3 1.2 0.2Textiles 7.4 1.5 6.3 5.7 -4.2Energy & water 2.3 4.9 0.8 1.7 3.8Durable goods 4.6 7.9 1.1 3.2 4.7Other manufactured goods 10.7 4.3 2.2 2.3 5.2Transport & telecommunication 0.4 0.2 2.2 2.3 5.2Rental housing 0.2 0.1 0.0 0.0 0.0Education 5.7 3.1 1.7 1.1 2.7Health 3.7 1.0 -0.6 -0.8 3.3Other services 2.9 1.2 0.5 1.1 6.3Total 3.4 2.8 2.1 3.2 5.0Consumer price changes (%)Source: Economic Accounts of Lebanon, 1997-2007
  4. 4. 4Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Item Average expenditureper HH (LBP 1000’s)Budget share(%)Food & tobacco 6 490.8 27.10Clothing & footwear 1 431.6 5.97Housing 3 620.2 15.11Equipment & household services 1 540.6 6.43Health 1 857.9 7.75Transport & communications 3 221.3 13.45Education 2 596.8 10.84Leisure 1 147.2 4.79Personal care, other expenses 2 042.5 8.53Total 23 948.9 100.00Household expenditures and budget shares, 1997Source: CAS, Household Living Conditions 1997, n° 13.
  5. 5. 5Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Industry 2003 2004 2005 2006 2007Agro-food 16.6 10.2 4.1 5.1 16.5Textiles, leather & clothing -5.3 -2.5 -5.1 1.5 1.8Non-metal ores & products 4.8 6.4 9.5 5.8 11.6Metals, machinery & equipment 8.6 11.1 4.0 5.6 14.7Wood, rubber & chemicals 8.0 10.6 9.9 4.0 12.5Furniture -2.2 4.0 5.6 1.7 7.3Other industries 3.5 9.4 2.4 1.0 5.0Total 9.8 11.1 8.7 5.4 11.6Industrial imported input price changes (%)Source: Economic Accounts of Lebanon, 1997-2007
  6. 6. 6Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012This presentation:1. Can we minimize imported inflation by giving up pegging to US$?2. What public policies to control rising food prices?3. How can Lebanon minimize in the short run the impactof oil price increases on energy prices?4. What are effective policies from other countries to controlrising housing costs?5. Conclusion
  7. 7. 7Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20121. Imported Inflation and Public Policies In small importing economies, imported inflation depends on:• Share of imported goods and production inputs• Competition in international markets• Global resource scarcity or tensions on commodity markets• Exchange rates, tariffs, and transaction costs Given trade patterns, would it be worth replacing USD with abasket of currencies for pegging to the Lebanese Pound?• Depends on long-term changes in trade patterns• Instability of the ratio US$ / €• Other considerations (remittances, gasoline/diesel/fuel)• Biofuel perspective: USD or Euro?
  8. 8. 8Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20122007 2008 2009 2010 2011Consumer Price Index 100 105.5 109.1 114.1 117.6Real GDP growth 7.5% 9.3% 8.5% 7.0% 4.5%(National Accounts)Real GDP growth 7.5% 9.3% 8.5% 7.0% 1.5%(IMF)Exports/Imports 23.8% 21.6% 21.5% 23.7% 21.2%Source: Ministry of Economy and Trade and IMF.Statistics on Inflation and Growth in Lebanon
  9. 9. 9Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20122000 2011Import value to Lebanon, by product
  10. 10. 10Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Source: Economic Research Unit, Trade Information Center and Lebanese customs.
  11. 11. 11Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 201220112000Import value to Lebanon, by country
  12. 12. 12Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012
  13. 13. 13Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20122. Food Prices and Public Policies Policies to control rising food prices in the medium run? Examples of Egypt, India, the Philippines:• Procurement prices for farmers and processors in agro-food chain• Subsidized consumer prices on “vital” goods• Strong impact on govt. budget, also due to poorlytargeted policies Tax policies also have indirect effects through changes inavailable income (after tax)
  14. 14. 14Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012 Prefer direct income transfers to price controls and subsidies• Provided targeting is adequate• Account for implementation and management costs ofpolicy FAO:• Reduce tariffs to encourage food imports• Discourage / restrict food exports to increase domesticfood supply• Promote pro-competitiveness policies in local markets• Open market operations through public stocks to stabilizeprices (Asia)
  15. 15. 15Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012
  16. 16. 16Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012 Food price pass-through in Lebanon:A 1 percent increase in world food prices translates into a 0.3percent increase in the prices of domestic foodstuff.Food Item Net Imports Import Share Cons. Share(% of consumption)Grains 87% 39% 32%Oils 38% 7% 8%Meat 56% 38% 49%Sugar 100% 16% 11%Food 70% Total 100% Total 100%Source: Elena Ianchovichina, Josef Loening and Christina Wood, 2012. HowVulnerable Are Arab Countries to Global Food Price Shocks? World Bank PolicyResearch Working Paper 6018
  17. 17. 17Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20123. Energy Prices and Public Policies How to minimize the impact of oil increases on energyprices in the short run? Consider demand-side management (more efficient use ofenergy) Coupled with social tariff of electricity In the longer run, supply-side policy (restructure energysector in Lebanon) Example: conversion to natural gas for power generation(allowing for long-term contracts)
  18. 18. 18Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Electricity rationing outside Beirut: 8-12 hours/dayEnergy and Water Minister Jebran Bassil in 2010:reasonable hourly electricity rate by private generator ownersshould not exceed a ceiling of LL350 ($0.23) for 5 Amperes
  19. 19. 19Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Electricité du Liban (EDL)Public monopoly (protected by Law 462)Average fee 37$/month/household in 2004Slow switch from oil to natural gas?Private (illegal) operatorsSupplying 61%-85% Lebanese populationAverage generator fee 19$/month/household2011: Minimum fee for 5 A: 100 $ / monthWindplant projectsGovt. objective: 60-100 MW/h in 2013Awa Akkar Project (Albert Khoury):30 windmills for 60 MWh (60,000 housings)Investment cost: 100 million $US
  20. 20. 20Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20124. Housing Cost and Public Policies What are the effective policies in other countries to controlrising housing prices? Most policies are dealing with a long-term issue:Growing gap between demand for housing and supply Either demand-side management or supply-side policies Long experience of OECD countries in designing housingpolicies: to what effect?
  21. 21. 21Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Housing Cost and Public PoliciesStatistics for the Lebanese Housing Sector2007 2008 2009 2010 2011Construction permits 10,358 13,727 15,438 17,922 18,347Surface (1000 m2) 9,038 16,067 14,343 17,625 16,465Number of sales 67,041 81,709 83,622 94,202 82,984Sales value (million $) 4,198 6,481 6,955 9,479 8,841Nb. Buildings 246,791 267,358 273,417 292,196 306,213Change prev. Year - 8.3% 2.3% 6.9% 4.8%Source: Ministry of Economy and Trade.
  22. 22. 22Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012
  23. 23. 23Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Housing markets and structural policies in OECD marketsDan Andrews, Aida Caldera Sánchez, Åsa Johansson,OECD Economics Department Working Paper 836, 2009 Policies influence housing supply:• land-use and planning (e.g., conversion of land)• provision of infrastructure and public services• social housing and rental regulation (eviction, rent control)• tax policy in the building sector• enhance competition in construction industry And demand for housing:• Financial market deregulation for access to credit• relaxation of lending standards• tax exemptions on mortgage payments• preferential housing taxation and rent allowances
  24. 24. 24Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012OECD countries: housing supply is negatively correlated topopulation density delay to obtain land use regulationa building permit
  25. 25. 25Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Rent control indicator, OECD countries (2009)
  26. 26. 26Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012 House prices tend to increase more in rigid supply environments Housing policies (land-use and building regulations) andcompetition in construction industry matter in housing supplyresponsiveness Financial market deregulation has eased access to credit andraised demand for housing Mortgage cost reliefs tend to be capitalised into house prices,leading to price increases Housing should be taxed in the same way as other investment andconsumption goodsHousing policies: main findings in OECD countries
  27. 27. 27Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012 Rent allowances• Affect demand for rental housing and households’ housingopportunities• May end up being capitalised into rents• Are likely to be less harmful for mobility than directprovision of social housing Rent regulation• Greater security of tenure may enhance demand for renting• Strict rent regulation hinders mobility• Seems to be associated with lower housing supply• No clear evidence that rent control leads to lower rents
  28. 28. 28Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 20125. Conclusion Policies can be• short-term (demand-side management)• long-term (structural adaptation)• budget-neutral or not (sustainability?) Lessons from subsidy policies• Non neutral policies are not sustainable• Efficient tax policies are politically difficult to accept• Critical to have alternative ways ofconsuming/producing/living to promote with tax policies Distinguish between policy objective and policy effectiveness Given the objective, identify the most efficient policies
  29. 29. 29Public Policies to Tackle the Rising Cost of LivingUpgrading Lebanons Economic Analytical Capacity, Beirut, May 31, 2012Thank you for your attentionthomas@toulouse.inra.fr

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