The Impact of Fuel Subsidy Targeting in Iran Using a CGE Model


1 Department of Economics, Payame Noor University of Marivan

2 Department of Economics, Islamic Azad University of Qazvin

3 Department of Economics, Kharazmi University,Tehran


Despite the implementation of the first phase of fuel subsidy targeting in December 2010, there are still debates over the economic impact of this project in Iran. A CGE model is used to analyze the impact of fuel subsidy targeting in Iran in four different scenarios. The data are used in the framework of SAM for the year 2001. In all scenarios, indirect subsidies are removed completely and replared with direct subsidies  to households, manufacturing and service sectors and government institutions.­­ The findings of this paper show that the effect of fuel subsidy targeting on economic variables depends on the way this policy is implemented. We find that an increase in the income of low-income household results in an increase in the production level of basic goods. Moreover, the result shows that  the mining industry, glass and other non-metallic minerals and other service sectors have comparative advantages. In all senatrios, the elimination of in direct subsidies results in stagflation. The inflation rate resulted from this policy is predicted to be between 16.1 to 21.1 percent. Furthermore, in all senariors, higher direct payments of subsidies to households are associated with higher growth and inflation rates and lower balance of payments.


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Volume 4, Issue 1
Winter and Spring 2015
Pages 53-79
  • Receive Date: 07 January 2015
  • Revise Date: 26 September 2015
  • Accept Date: 16 December 2015