Welfare and Fiscal Implications from Increased Gasoline Prices in the Islamic Republic of Iran
Facing a fiscal crisis, the Islamic Republic of Iran decided to increase gasoline prices at the end of 2019. This paper estimates the impact of the price increase on household welfare and government revenue, using the most recent Household Expenditure and Income Survey conducted by the Statistical Center of Iran in March 2018-March 2019. The paper looks at the direct and indirect impacts of the reform and quantifies the compensatory cash transfer program the government instituted. Despite very regressive gasoline subsidies benefitting the rich the most, the increase in gasoline prices is found to affect the poor to a greater extent due to larger negative indirect impacts as well as their relatively low incomes. In total, poverty is estimated to increase by about 2.9 percentage points, with the direct impact accounting for a third of this increase. The proposed government scheme, if targeted perfectly to the poorest 18 million households, would fully compensate the poorest bottom 50 percent of the population and reduce poverty to below pre-reform levels. The annual cost of the program will be around 338 trillion rials, which accounts for 77 percent of the estimated total savings from the subsidies reform (439 trillion rials).
| Main Authors: | , , |
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| Format: | Working Paper biblioteca |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020-05
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| Subjects: | GASOLINE PRICE, POVERTY, SUBSIDIES, FISCAL TRENDS, INCOME ELASTICITY, CASH TRANSFERS, FISCAL IMPACT, OIL PRICES, |
| Online Access: | http://documents.worldbank.org/curated/en/289841588875283367/Welfare-and-Fiscal-Implications-from-Increased-Gasoline-Prices-in-the-Islamic-Republic-of-Iran https://hdl.handle.net/10986/33744 |
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| Summary: | Facing a fiscal crisis, the Islamic
Republic of Iran decided to increase gasoline prices at the
end of 2019. This paper estimates the impact of the price
increase on household welfare and government revenue, using
the most recent Household Expenditure and Income Survey
conducted by the Statistical Center of Iran in March
2018-March 2019. The paper looks at the direct and indirect
impacts of the reform and quantifies the compensatory cash
transfer program the government instituted. Despite very
regressive gasoline subsidies benefitting the rich the most,
the increase in gasoline prices is found to affect the poor
to a greater extent due to larger negative indirect impacts
as well as their relatively low incomes. In total, poverty
is estimated to increase by about 2.9 percentage points,
with the direct impact accounting for a third of this
increase. The proposed government scheme, if targeted
perfectly to the poorest 18 million households, would fully
compensate the poorest bottom 50 percent of the population
and reduce poverty to below pre-reform levels. The annual
cost of the program will be around 338 trillion rials, which
accounts for 77 percent of the estimated total savings from
the subsidies reform (439 trillion rials). |
|---|