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

Leveraging Fuel Subsidy Reform for Transition in Yemen

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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 which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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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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