Jump to ContentJump to Main Navigation
The Macroeconomics of the Arab States of the Gulf$
Users without a subscription are not able to see the full content.

Raphael Espinoza, Ghada Fayad, and Ananthakrishnan Prasad

Print publication date: 2013

Print ISBN-13: 9780199683796

Published to Oxford Scholarship Online: January 2014

DOI: 10.1093/acprof:oso/9780199683796.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 28 March 2020

Government Spending, Subsidies, and Economic Efficiency

Government Spending, Subsidies, and Economic Efficiency

Chapter:
(p.65) 4 Government Spending, Subsidies, and Economic Efficiency
Source:
The Macroeconomics of the Arab States of the Gulf
Author(s):

Raphael Espinoza

Ghada Fayad

Ananthakrishnan Prasad

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199683796.003.0004

Public investment and subsidies can be inefficient, but in the GCC these are crucial engines of growth. Subsidies are also used to redistribute oil windfalls, and the problem of a government that wants to distribute oil revenues is an aspect fully symmetric to the one analyzed by Ramsey (1927) on optimal taxation. The second-best policy is to use subsidies across a wide range of goods, as opposed to the focus on energy chosen by the GCC. In addition, commodities for which demand is least elastic to prices (basic needs such as food, healthcare and education) should be subsidized at higher rates. However, subsidies can create additional distortions because households prefer to queue for subsidies (e.g. public service jobs, subsidized mortgages in Saudi Arabia) rather than participate in private markets. We draw a model where recruitment of public servants can induce a large disincentive to take private sector positions.

Keywords:   gulf cooperation council, middle east and north africa, ramsey, resource curse, energy subsidies

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .