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Abstract
This paper represents an initial attempt at assessing the importance of estimated demand
systems for the simulation of large price shocks with respect to poverty analysis.
Using a Ugandan household survey data set and an estimated flexible demand
system, three different approaches to simulating the compensated expenditure budget
due to large food price shocks are compared: a non-behavioral microaccounting,
and three behavioral demand systems (LES, CDE, and QUAIDS). The aim of this
study is twofold. First, to provide an indication whether it is worthwhile to invest
in the estimation of a demand system for similar consumption side poverty impact
analyses. Second, to provide a sense of the magnitude in the loss of fidelity from
using a less flexible instead of a more flexible demand system within computable
general equilibrium analyses of poverty impacts. The results show that using no demand
system overestimates poverty impacts to quite some extent. The differences
between using either of the three demand systems are rather small but may be more
substantial in the extremes.