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Impact of Cash Subsidy Transfer in a Nonlinear Programming Model for Economic Input-Output Analysis

Author

Listed:
  • Haqiqi, Iman
  • Shahi, Zahra
  • Ismaili, Mahdi

Abstract

This paper measures the distributional and welfare impacts of cutting commodity subsidy and paying cash subsidy. We introduce an extended Input-Output model employing a non-linear programming approach. The model is calibrated based on 2004 Iranian Micro Consistent Matrix with 56 commodity groups, 10 rural, and 10 urban household groups. Then we calculate Rawlsian welfare, Bentham welfare, and Cobb-Douglass welfare functions. Then the 2010 version of Iranian Economic Reform Plan to cut commodity subsidies and pay them in cash is simulated. We translate the 2010 cash subsidy policy to scale of 2004 data and with special attention to different household dimension. Simulating the policy, we found that equal payment to all individuals can lead to 47% rise in Rawlsian welfare index, and 3.6% higher welfare in Bentham welfare function. Paying cash subsidy to seven expenditure-deciles of households can improve the Rawlsian and Bentham welfare index by 73% and 1.9%, respectively. Although this policy is preferred by equality measures, it decreases the welfare of top 30% rich between 13% to 16%.

Suggested Citation

  • Haqiqi, Iman & Shahi, Zahra & Ismaili, Mahdi, 2017. "Impact of Cash Subsidy Transfer in a Nonlinear Programming Model for Economic Input-Output Analysis," MPRA Paper 95783, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95783
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    References listed on IDEAS

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    1. Manzoor, Davood & Haqiqi, Iman, 2012. "Impact of Energy Price Reform on Environmental Emissions; A Computable General Equilibrium Approach," MPRA Paper 95818, University Library of Munich, Germany.
    2. Hawdon, David & Pearson, Peter, 1995. "Input-output simulations of energy, environment, economy interactions in the UK," Energy Economics, Elsevier, vol. 17(1), pages 73-86, January.
    3. Davood Manzoor & Asghar Shahmoradi & Iman Haqiqi, 2012. "An analysis of energy price reform: a CGE approach," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 36(1), pages 35-54, March.
    4. James, D. E. & deL. Musgrove, A. R. & Stocks, K. J., 1986. "Integration of an economic input-output model and a linear programming technological model for energy systems analysis," Energy Economics, Elsevier, vol. 8(2), pages 99-112, April.
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    Cited by:

    1. Haqiqi, Iman & Yasharel, Sepideh, 2018. "Removing Fossil Fuel Subsidies to Help the Poor," MPRA Paper 95907, University Library of Munich, Germany.
    2. Haqiqi, Iman & Manzoor, Davood, 2012. "Environmental Impacts of Phasing out Energy Subsidies," MPRA Paper 95688, University Library of Munich, Germany, revised 2016.

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    More about this item

    Keywords

    Cash subsidy; Social Welfare; income distribution; Input-Output model; nonlinear programming;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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