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Welfare and Fiscal Implications from Increased Gasoline Prices in the Islamic Republic of Iran

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  • Atamanov,Aziz
  • Mostafavi Dehzooei,Mohammadhadi
  • Wai-Poi,Matthew Grant

Abstract

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).

Suggested Citation

  • Atamanov,Aziz & Mostafavi Dehzooei,Mohammadhadi & Wai-Poi,Matthew Grant, 2020. "Welfare and Fiscal Implications from Increased Gasoline Prices in the Islamic Republic of Iran," Policy Research Working Paper Series 9235, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9235
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    References listed on IDEAS

    as
    1. Lucas W. Davis, 2014. "The Economic Cost of Global Fuel Subsidies," American Economic Review, American Economic Association, vol. 104(5), pages 581-585, May.
    2. Atamanov,Aziz & Mostafavi,Mohammad-Hadi & Salehi Isfahani,Djavad & Vishwanath,Tara, 2016. "Constructing robust poverty trends in the Islamic Republic of Iran : 2008-14," Policy Research Working Paper Series 7836, The World Bank.
    3. Mohammad H. Mostafavi-Dehzooei & Djavad Salehi-Isfahani, 2017. "Consumer Subsidies in the Islamic Republic of Iran: Simulations of Further Reforms," Natural Resource Management and Policy, in: Paolo Verme & Abdlekrim Araar (ed.), The Quest for Subsidy Reforms in the Middle East and North Africa Region, chapter 0, pages 259-289, Springer.
    4. Mohamad Taghvaee, Vahid & Hajiani, Parviz, 2014. "Price and Income Elasticities of Gasoline Demand in Iran: Using Static, ECM, and Dynamic Models in Short, Intermediate, and Long Run," MPRA Paper 70054, University Library of Munich, Germany.
    5. Djavad Salehi-Isfahani & Bryce Wilson Stucki & Joshua Deutschmann, 2015. "The Reform of Energy Subsidies in Iran: The Role of Cash Transfers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(6), pages 1144-1162, November.
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    Cited by:

    1. Majidpour, Mehdi, 2022. "Policy lessons from the execution of fuel dual-pricing: Insights for fuel-subsidizing economies," Energy, Elsevier, vol. 247(C).
    2. Vahid Mohamad Taghvaee & Abbas Assari Arani & Susanne Soretz & Lotfali Agheli, 2023. "Diesel demand elasticities and sustainable development pillars of economy, environment and social (health): comparing two strategies of subsidy removal and energy efficiency," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(3), pages 2285-2315, March.

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