Impact of Structural Adjustment Programme on Household Welfare and Inequality - Pakistan A Case-in-Point for the Developing Countries

Abstract

In this article the impact of Structural Adjustment Programme on Household Welfare and Inequality is discussed and the situation in Pakistan is reviewed as a Case-in-Point which will be useful in studying the situation in other developing countries. A computable general equilibrium model is used to analyse policies under structural adjustment programmes for Pakistan. This model was used to analyse the economic implications of two key elements in the structural adjustment programmes, namely fiscal strictness and trade liberalization policy. The experiment was based on a combination of the said two elements.  The objective of this experiment was to determine the possibility of making up the existing trade deficit and revenue losses due to the abolition of tariff. Three variables were considered in this experiment – increase in sales tax, increase in income tax, and cut in government’s consumption expenditures. It was observed that a cut in government consumption expenditure tends to outperform other fiscal stances in terms of household and economy-wide welfare indicators. The results suggest that targeting the government’s consumption expenditures tends to be a real and potent tool for reducing government budget deficit and to cover losses arising out of the import tariff abolition.