Instead of creating the fiscal space needed for the subsidy by raising its receipts, the government may alternatively reduce spending in other areas. For the scenario _sub+spnd_ , the government budget is balanced via scaled-down growth in all areas of government spending except for food subsidies, household transfers and investment in agriculture. Compared to _sub+tax_ , the main macro difference is that the _sub+spnd_ simulation raises private final demands while government demands decline. The GDP and absorption growth rates are virtually identical for the two simulations. The fact that GDP growth for the two scenarios is almost identical indicates that the gain from more rapid private investment growth and capital accumulation is counterbalanced by productivity losses stemming from less public investment, especially in public infrastructure. In the HD area, the growth acceleration compared to _sub+tax_ primarily benefits high-income households (Table A2.2), leaving the headcount poverty rate unchanged but leads to weaker performance for other HD indicators, indicating that higher aggregate private consumption does not make up for slower growth in targeted government services.<sup>22</sup> In the real world, the net difference between these two simulations in terms of impact on non-poverty HD indicators is likely to be context-specific, depending on the details of the changes in both government and private spending.<sup>23</sup> The second set of simulations considers an alternative policy response: instead of using subsidies to protect households from the negative repercussions of higher food prices, governments may instead design transfer programs targeted at low-income households, perhaps also conditional on other actions such as school attendance or participation in health programs. In the last two simulations ( _trn+tax_ and _trn+tax2_ ), the tax rate increases are the same as for the simulation _sub+tax_ but, instead of allocating them to an untargeted food subsidy, they are transferred to the bottom half of the income distribution in rural and urban areas. Relative to food subsidies, such a transfer program may be relatively demanding of administrative resources. To explore the potential role of administrative costs the simulation _trn+tax_ assumes that the transfer program can be handled by the existing government administration while _trn+tax2_ imposes an additional demand for government services that corresponds to 25 percent of the cost of the transfer program during its first three years (20122014) after which the cost declines to 20 percent in the fourth year (2015) and is limited to 15 percent starting from 2016.<sup>24</sup> Using _sub+tax_ as the comparator, the growth rates for GDP and absorption for the first transfer simulation ( _trn+tax_ , without transactions costs) decline very marginally. The two driving forces behind this decline (albeit a moderate one) are (a) a decline in household savings and private investment as the transfer program involves a redistribution of income from (high-income) households with relatively high savings rates to (low-income) households with relatively low

> 22 The undernourishment rate, which is computed assuming that the distribution is unchanged, declines slightly for _sub+spnd_ compared to _sub+tax_ ; however, this may be misleading since consumption distribution becomes less equally distributed.

> 23 The outcome would be more positive for a scenario in which government spending reductions to a larger extent target relatively unproductive government functions, in the context of MAMS this would translate into spending cuts in areas other than HD and infrastructure.

> 24 These percentages are based on Caldes et al. (2006).

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