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Food and energy subsidy reforms in Iran: A general equilibrium analysis

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  • Gharibnavaz, Mohammad Reza
  • Waschik, Robert
Abstract
In 2010, the Iranian Government launched several market-oriented reforms, including the removal of distortions on heavily subsidized food and energy products. We use a microconsistent CGE model with 20 urban and rural households to model the actual characteristics of the food and energy subsidy reforms as implemented by the Iranian Government, calibrated to econometrically estimated income elasticities, and accounting for variations in sources of income and family size across households. Results suggest that food and energy subsidy reforms accompanied by lump-sum payments to households could result in aggregate welfare gains of over 45 per cent, with low income households experiencing welfare gains of well over 100 per cent. Reforms are accompanied by an increase in real government revenue of over 30 per cent. So while the subsidy reform programme is likely responsible for at least some of the inflationary pressures currently being experienced by the Iranian economy, it should not be seen as being responsible for the Iranian government's current fiscal difficulties, nor should it be blamed for the recent contraction of the Iranian economy, both of which are more likely due to the effects of international sanctions and the steep decline in the value of the Iranian Rial.

Suggested Citation

  • Gharibnavaz, Mohammad Reza & Waschik, Robert, 2015. "Food and energy subsidy reforms in Iran: A general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 726-741.
  • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:5:p:726-741
    DOI: 10.1016/j.jpolmod.2015.07.002
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    References listed on IDEAS

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    Cited by:

    1. Stéphane Gauthier & Taraneh Tabatabai, 2019. "How incentives matter? An illustration from the targeted subsidies reform in Iran," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 52(1), pages 97-125, January.
    2. Li, Aijun & Peng, Dan & Wang, Daoping & Yao, Xin, 2017. "Comparing regional effects of climate policies to promote non-fossil fuels in China," Energy, Elsevier, vol. 141(C), pages 1998-2012.
    3. Farajzadeh, Zakariya & Zhu, Xueqin & Bakhshoodeh, Mohammad, 2017. "Trade reform in Iran for accession to the World Trade Organization: Analysis of welfare and environmental impacts," Economic Modelling, Elsevier, vol. 63(C), pages 75-85.
    4. Haqiqi, Iman & Yasharel, Sepideh, 2018. "Removing Fossil Fuel Subsidies to Help the Poor," MPRA Paper 95907, University Library of Munich, Germany.
    5. Zarepour, Zahra & Wagner, Natascha, 2022. "Cash instead of subsidy: Assessing the impact of the iranian energy subsidy reform on households," Energy Policy, Elsevier, vol. 168(C).
    6. Zahra Zarepour, 2022. "Short- and long-run macroeconomic impacts of the 2010 Iranian energy subsidy reform," SN Business & Economics, Springer, vol. 2(10), pages 1-32, October.
    7. Ghosh, Probal P., 2022. "Impact of India's diesel subsidy reforms and pricing policy on growth and inflation," Energy Economics, Elsevier, vol. 113(C).
    8. Stephane Gauthier & Taraneh Tabatabai, 2017. "How incentives matter ? An illustration from the Targeted Subsidies reform in Iran," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01542799, HAL.
    9. Aghababaei, Mohammad Ebrahim, 2019. "General Equilibrium Resource Elasticity in an Open Resource-Abundant Economy," MPRA Paper 97851, University Library of Munich, Germany.
    10. Raei, Hasan & Maleki, Abbas & Farajzadeh, Zakariya, 2024. "Analysis of energy policy reform in Iran: Energy and emission intensity changes," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1535-1557.
    11. Timilsina, Govinda R. & Pargal, Sheoli, 2020. "Economics of energy subsidy reforms in Bangladesh," Energy Policy, Elsevier, vol. 142(C).
    12. Auktor, Georgeta Vidican & Loewe, Markus, 2021. "Subsidy reforms in the Middle East and North Africa: Strategic options and their consequences for the social contract," IDOS Discussion Papers 12/2021, German Institute of Development and Sustainability (IDOS).
    13. Khan, Haider, 2023. "Geoeconomics, Structural Change and Energy Use in Iran: A SAM-Based CGE Analysis with Some Geoeconomic and Geopolitical Considerations," MPRA Paper 117155, University Library of Munich, Germany.
    14. Zhan-Ming Chen, 2017. "Inventory and Distribution of Energy Subsidies of China," The Energy Journal, , vol. 38(1_suppl), pages 47-62, June.
    15. Gelan, Ayele U., 2018. "Kuwait's energy subsidy reduction: Examining economic and CO2 emission effects with or without compensation," Energy Economics, Elsevier, vol. 71(C), pages 186-200.
    16. Aiman Albatayneh & Adel Juaidi & Francisco Manzano-Agugliaro, 2023. "The Negative Impact of Electrical Energy Subsidies on the Energy Consumption—Case Study from Jordan," Energies, MDPI, vol. 16(2), pages 1-17, January.
    17. Dennis, Allen, 2016. "Household welfare implications of fossil fuel subsidy reforms in developing countries," Energy Policy, Elsevier, vol. 96(C), pages 597-606.
    18. Zhan-Ming Chen, 2017. "Inventory and Distribution of Energy Subsidies of China," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).

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    More about this item

    Keywords

    Subsidy reform; CGE model; Household disaggregation; Government revenue;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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