Analysis of the Welfare Effects of Eliminating Subsidies on Basic Goods: An Application of the GTAP Model

Document Type : Research Paper

Authors

Department of Economics, Kerman Branch, Islamic Azad University, Kerman, Iran.

10.22103/jdc.2023.22518.1440

Abstract

Objective: In the development literature, the payment of basic goods subsidies is a tool to support the poor. However, dissatisfaction with the focus on the existence of general subsidies is increasing. This has led to the move from general subsidies to targeted subsidies being considered as a structural adjustment method. In this regard, an important issue for policymakers is at what level, when and how to adjust the basic goods subsidies without causing any chaos. Therefore, the motivation of the present study is to understand the welfare effects of eliminating basic goods subsidies.
Method: In the present study, empirical analysis and quantification of results were used using the World Trade Analysis Project model and its version 10 database. The data include social accounting matrices of 141 countries and 65 sectors. These data were aggregated into four sectors (dairy, rice, sugar and other foods) and two regions (Iran and the rest of the world).
Results: The results showed that a 50 and 100 percent reduction in subsidies paid on domestic business consumption in all four sectors would reduce and increase the welfare of Iran and the rest of the world, respectively.
Conclusion: Given the further reduction in Iran's economic welfare in the second scenario, it is recommended that subsidies for basic goods be eliminated gradually.

Keywords

Main Subjects

References

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History

  • Receive Date: 15 November 2023
  • Revise Date: 05 December 2023
  • Accept Date: 16 December 2023

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