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Sustainability 2012, 4(11), 2862-2887; doi:10.3390/su4112862
Article

Leveraging Fuel Subsidy Reform for Transition in Yemen

1,* , 2
 and
1
1 International Food Policy Research Institute, Development Strategy and Governance Division, 2033 K St, NW Washington, DC 20006-1002, USA 2 The World Bank, 1818 H Street, NW Washington, DC 20433, USA
* Author to whom correspondence should be addressed.
Received: 28 September 2012 / Revised: 17 October 2012 / Accepted: 17 October 2012 / Published: 30 October 2012
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Abstract

Yemen is currently undergoing a major political transition, yet many economic challenges—including fuel subsidy reform—remain highly relevant. To inform the transition process with respect to a potential subsidy reform, we use a dynamic computable general equilibrium and microsimulation model for Yemen; we show that overall growth effects of subsidy reduction are positive in general, but poverty can increase or decrease depending on reform design. A promising strategy for a successful reform combines fuel subsidy reduction with direct income transfers to the poorest one-third of households during reform, and productivity-enhancing investment in infrastructure, plus fiscal consolidation. Public investments should be used for integrating economic spaces and restructuring of agricultural, industrial and service value chains in order to create a framework that encourages private-sector-led and job-creating growth.
Keywords: fuel subsidy reform; development; poverty; Middle East; Northern Africa; Yemen fuel subsidy reform; development; poverty; Middle East; Northern Africa; Yemen
This is an open access article distributed under the Creative Commons Attribution License (CC BY 3.0).

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Breisinger, C.; Engelke, W.; Ecker, O. Leveraging Fuel Subsidy Reform for Transition in Yemen. Sustainability 2012, 4, 2862-2887.

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