savings rates; and (b) a less labor-intensive demand pattern under the transfer scheme than under food subsidies, leading to downward pressure on unemployment (and lower wage growth). The difference between low- and high-income household savings rates is a stylized fact of development economics that also is reflected in our archetype LIC.<sup>25</sup> It is also plausible that a transfer scheme of this type, which encourages increased production of commodities with relatively high-income elasticities, is less labor-intensive than a scheme that encourages food demand.<sup>26</sup> On the other hand, the transfer program reaches its objective of benefitting low-income households. Compared to _sub+tax_ , the growth rates for real per-capita consumption are 1.2-1.4 percentage points higher for rural and urban low-income households and 0.5 percentage points lower for high-income households in both regions, reducing aggregate Gini inequality to 0.34 from around 0.38-0.40 for all non-transfer scenarios. Among the HD indicators, the head count poverty rate in 2025 is 9 percentage points lower than for _sub+tax_ , a significant change, while undernourishment increases and other indicators do not change by much.<sup>27</sup> The final simulation, _trn+tax2_ , imposes the tax-financed transfer scheme with the abovementioned administrative costs, reducing the amount of money that can be transferred. Compared to _trn+tax_ , the main difference in the government budget is more government consumption, imposing a reduction in transfers to low-income households that, in 2025 throughout most of the simulation period amounts to around 0.6 percent of GDP. There are virtually no differences in aggregate growth rates except for slightly more rapid consumption growth for the government (to handle program administration) and slightly less rapid growth for low-income households (since the transfers that they receive are lower), leading to a marginally higher Gini coefficient. However, if transactions costs were significantly higher, the distributional consequences of the transfer scheme would also be more significantly weakened. This points to the importance of considering administrative costs and means of keeping them in check when transfer schemes are considered. This observation also applies to untargeted food subsidies since they typically also impose administrative costs.

Figures 3.6-3.8 compare selected MDG outcomes for the policy scenarios to the scenario with the same increase in food import prices but without any policy response ( _pwm+_ ). For MDG 1 (headcount poverty; Figure 3.6), the scenarios with targeted transfers dominate. Among the food subsidy scenarios, financing from grant aid dominates as it does not require either higher 25 In the net importer archetype database, the base-year savings rates (average and marginal) are considerably lower for rural and urban low-income households (6.6 and 1.8 percent, respectively) than for high-income households (with rates of 12.5 and 16.4 percent for the rural and urban high-income households, respectively). 26 To verify that the growth difference between the _trn+tax_ and _sub+tax_ scenarios is driven by these two differences (in savings and labor-intensity, the two scenarios were rerun with alternative assumptions for savings (scaling of household savings rates so that the private investment share in absorption is the same as under the _base_ scenario) and a fixed (base-year) unemployment rates for the full simulation period. When these two changes were combined, the growth and absorption outcomes for the two scenarios were practically identical. 27 However, these results are based on national relationships that do not consider likely positive effects of income redistribution on undernourishment and the other HDs as low-income households with relatively low HD are in a better position to buy goods and services food or other) and make other decisions (like reducing child labor), all of which may have high marginal HD returns.

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