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Trade, Exchange Rate, and Energy Pricing Reform in Iran: Potentially Large Efficiency Effects and Gains to the Poor

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  • Jesper Jensen
  • David Tarr

Abstract

Iran is committed to substantial trade and market reform in its Third Five Year Development Plan. It started, however, with nontariff barriers on all products, a dual exchange rate regime with the market rate more than four times the official rate, and domestic energy product subsidies of about 90%. The authors develop a multisector computable general-equilibrium model with ten rural and ten urban households to analyze the various reforms, separately and together. Reflecting the large initial distortions, they find that the combined reforms could generate large welfare gains equal to about 50% of aggregate consumer income. Moreover, the results show that well-intentioned policies of commodity subsidies for the poor can have perverse effects. Even nontargeted direct income payments to all households (not just the poor) would enormously and progressively increase the incomes of the poor compared to the status quo. Copyright Blackwell Publishing Ltd 2003.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 7 (2003)
Issue (Month): 4 (November)
Pages: 543-562

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Handle: RePEc:bla:rdevec:v:7:y:2003:i:4:p:543-562

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Cited by:
  1. Rutherford, Thomas & Tarr, David & Shepotylo, Oleksandr, 2005. "The impact on Russia of WTO accession and the Doha agenda : the importance of liberalization of barriers against foreign direct investment in services for growth and poverty reduction," Policy Research Working Paper Series 3725, The World Bank.
  2. Hesham AlShehabi, Omar, 2012. "Energy and labour reform: Evidence from Iran," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 441-459.
  3. Glenn W. Harrison & Thomas F. Rutherford & Tarr,David, 2003. "Rules of thumb for evaluating preferential trading arrangements : evidence from computable general equilibrium assessments," Policy Research Working Paper Series 3149, The World Bank.
  4. Hossein Mirshojaeian Hosseini & Shinji Kaneko, 2012. "A general equilibrium analysis of the inflationary impact of energy subsidies reform in Iran," IDEC DP2 Series 2-8, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  5. Tarr, David G., 2012. "Putting services and foreign direct investment with endogenous productivity effects in computable general equilibrium models," Policy Research Working Paper Series 6012, The World Bank.
  6. Pierre-Olivier Pineau, 2008. "Electricity Subsidies in Low-Cost Jurisdictions: The Case of British Columbia," Canadian Public Policy, University of Toronto Press, vol. 34(3), pages 379-394, September.
  7. AlShehabi, Omar Hesham, 2013. "Modelling energy and labour linkages: A CGE approach with an application to Iran," Economic Modelling, Elsevier, vol. 35(C), pages 88-98.

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