Tariff Reduction and Income Distribution: A CGE-based Analysis for Urban and Rural Households in Pakistan
Most developing countries, facing persistent budget deficit and balance of payment crisis, adopted Structural Adjustment Programme (SAP hereinafter) in 1980s. Under the programme there has been a general shift away from the quantitative restrictions and price controls towards liberalisation and privatisation. Has this policy package resulted in the desired results of improving the economic conditions, structural imbalance and income distribution in Pakistan or not? This is an important question. Such a question may be answered by simulation a priori or actual trends against counter factual in the absence of such changes. A number of empirical studies, in 1990’s, examined this question1 and showed that in most countries the initial impact of the reforms was worsening growth rates and income distribution. However, in the long run, some countries were able to improve the economic growth and income distribution while the others were worse off even in the long run. In case of Pakistan, empirical studies suggest that distributional impact of SAP is unevenly distributed among the population, hurting the most vulnerable group the most.2 None of the studies, however, compared the results with counter factual.