Investigating the role of ranking household expenditures to reform the subsidies payment system as an economic policy for Iran

Given the problems created by the high volume of subsidies and their significant share in government budgets, as well as, the failure to achieve the governmental goals in the field of subsidies, reform of the subsidies payment system has constantly been a concern of various governments. The welfare of society, especially the low‐income groups, has always been the focus of governments. To this end, subsidies are paid, particularly for basic goods, with the aim of decreasing prices and increasing purchasing power. However, since such payments are not targeted, a major part of subsidies will be granted to the upper classes and high‐income deciles. Therefore, targeting subsidies and paying attention to prioritizing costs in the household basket regarding subsidies payment will be an undeniable necessity. Currently, Iran faces fundamental problems in equitable management and distribution of subsidies, and the distribution of subsidies is extremely unfair. Given the importance of this issue and in order to provide a solution to reform the subsidy structure of Iran, present paper tries to examine the share of consuming expenditures in Iranian households using econometric methods and thus establish as a basis for ranking the costs. Accordingly, as a policy on targeting subsidies, we also aim to provide policymakers with better ways to implement policies. In general, the results indicate that targeting the subsidies in the household sector is different due to the different share of costs in the household budget and implementing the same approach to policy of targeting the subsidies is not appropriate for all households.