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Assessing effects of alternative food subsidy reform in Iran

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  • Karami, Ayatollah
  • Esmaeili, Abdoulkarim
  • Najafi, Bahadin
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    Abstract

    The food subsidy programs and its long-term effects have emerged as major developmental issues in many developing countries. The programs might increase social welfare to individuals but they pose both an unnecessary burden on the public budget and are economically inefficient because their benefits are often not received by the poor. Furthermore, due to improper targeting, a large part of food subsidies is “leaked” to high-income people. This study aims to investigate the effects of alternative food subsidy reforms on households’ welfare and government expenditure in Iran. For this purpose, computable general equilibrium (CGE) model was applied. The scenarios consist of, gradual omission of subsidy during 3 and 5 years period and instant complete omission of food subsidy. The results indicated that in these polices government expenditure decreases by 5.8%, and resulting to decrease in import and export of agricultural and non-agricultural goods, but decreases in import exceeds the export reduction. In addition, results showed that the welfare of households’ decreases for all scenarios, since decreases in urban households is greater than as rural households. Furthermore, between quintiles groups, decreases among welfare in high income quintiles are greater than the lower income ones groups. Based on the result, it is recommended to implement the food subsidy reform in 5 years period and targeted to lower income segments of the society. The most important policy implication of this study is the reallocation of food subsidy gradually among lower income quintiles groups.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Policy Modeling.

    Volume (Year): 34 (2012)
    Issue (Month): 5 ()
    Pages: 788-799

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    Handle: RePEc:eee:jpolmo:v:34:y:2012:i:5:p:788-799

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    Web page: http://www.elsevier.com/locate/inca/505735

    Related research

    Keywords: Food subsidy; Iran; CGE model; Welfare;

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    References

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    1. Amid, Javad, 2007. "The dilemma of cheap food and self-sufficiency: The case of wheat in Iran," Food Policy, Elsevier, vol. 32(4), pages 537-552, August.
    2. Redmond, Willie J., 2003. "A quantification of policy reform: an application to the Uruguay Round Negotiations on Agriculture," Journal of Policy Modeling, Elsevier, vol. 25(9), pages 893-910, December.
    3. Mustafa Babiker, . "Impacts of Public Policy on Poverty in Arab Countries:Review of the CGE Literature," API-Working Paper Series 0403, Arab Planning Institute - Kuwait, Information Center.
    4. Srivastava, D.K. & Rao, C. Bhujanga, 2002. "Government Subsidies in India: Issues and Approach," Working Papers 02/06, National Institute of Public Finance and Policy.
    5. Dhehibi, B. & Gil, J. M., 2003. "Forecasting food demand in Tunisia under alternative pricing policies," Food Policy, Elsevier, vol. 28(2), pages 167-186, April.
    6. Lofgren, Hans & El-Said, Moataz, 1999. "A general equilibrium analysis of alternative scenarios for food subsidy reform in Egypt:," TMD discussion papers 48, International Food Policy Research Institute (IFPRI).
    7. Tuck, L. & Lindert, K., 1996. "From Universal Food Subsidies to a Self-Targeted Program: A Case Study in Tunisian Reform," World Bank - Discussion Papers 351, World Bank.
    8. Bhaskar Dutta & Bharat Ramaswami, 2002. "Reforming food subsidy scheme: Estimating the gains from self-targetting in India," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 02-09, Indian Statistical Institute, New Delhi, India.
    9. Gutner, Tamar, 2002. "The political economy of food subsidy reform: the case of Egypt," Food Policy, Elsevier, vol. 27(5-6), pages 455-476.
    10. Dorosh, Paul A. & Sahn, David E., 2000. "A General Equilibrium Analysis of the Effect of Macroeconomic Adjustment on Poverty in Africa," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 753-776, November.
    11. Islam, Yassir & Garrett, James L., 1997. "IFPRI and the abolition of the wheat flour ration shops in Pakistan: a case-study on policymaking and the use and impact of research," Impact assessments 1, International Food Policy Research Institute (IFPRI).
    12. Ramaswami, B. & Balakrishnan, P., 2002. "Food prices and the efficiency of public intervention: the case of the public distribution system in India," Food Policy, Elsevier, vol. 27(5-6), pages 419-436.
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    Cited by:
    1. Jha, Raghbendra & Gaiha, Raghav & Pandey, Manoj K. & Kaicker, Nidhi, 2013. "Food subsidy, income transfer and the poor: A comparative analysis of the public distribution system in India's states," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 887-908.

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