REDUCING POVERTY THROUGH SUBSIDIES: SIMULATION OF FUEL SUBSIDY DIVERSION TO NON-FOOD CROPS

Abstract

This paper analyzes the impact of fuel subsidy diversion to Non-Food Crops sector on income levels, using AGEFIS; a Computable General Equilibrium model. Then we proceed to apply the Foster-Greer-Thorbecke (FGT) index to measure the indicators of poverty (head count index, poverty gap index and poverty severity index). The simulation result shows the fuel subsidy diversion to Non-Food Crops sector provides a positive impact on increasing household incomes and poverty reduction. Furthermore, the fuel subsidy diversion to Non-Food Crops sector reduces the poverty of rural household, larger than the urban households. Keywords: Subsidy, poverty, computable general equilibrium, AGEFIS.JEL Classification: C68, E62, I32