HOW DO WORLD AGRICULTURAL COMMODITY PRICE SPIKES AFFECT THE INCOME DISTRIBUTION IN ISRAEL?
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We assess the distributional effects of the transmission of world market price
shocks for the highly import dependent economy of Israel. We combine a CGE simulation
with an empirical cointegration analysis for assessing the direction and extent of the
connectedness of Israeli and world market prices. The Israeli and the world market for wheat
are found to be integrated. Price shocks are completely transmitted from the world market to
the domestic Israeli market. We find negative effects on the amount of domestic household
income, on consumption and on welfare. Regressive expenditure effects dominate progressive
income effects so that the resulting domestic income distribution appears to be more unequal.