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Fiscal Reforms in General Equilibrium: Theory and an Application to the Subsidy Debate in Iran

  • Gahvari Firouz


    (University of Illinois at Urbana-Champaign)

  • Taheripour Farzad


    (Purdue University)

This paper estimates the pattern of consumer expenditures in Iran in an attempt to measure the welfare cost of price subsidies in that country and shed light on possible fiscal reforms. We use the Quadratic Almost Ideal Demand System (Banks et al. (1997)) as our framework for estimation. We show that the general equilibrium fiscal interaction effects play a crucial role in determining the amount the government saves by eliminating the price subsidy of a particular good. Interestingly, eliminating price subsidies on utilities saves the government little by way of revenues and is welfare reducing. Comparing the gains for non-marginal with marginal reforms a la Ahmad and Stern (1984), we also show that the two approaches may not necessarily recommend the same reform.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (June)
Pages: 1-54

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:36
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  3. Parry Ian W. H. & West Sarah E & Laxminarayan Ramanan, 2009. "Fiscal and Externality Rationales for Alcohol Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-48, July.
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  7. Don Fullerton & Gilbert E. Metcalf, 1997. "Environmental Controls, Scarcity Rents, and Pre-Existing Distortions," Discussion Papers Series, Department of Economics, Tufts University 9703, Department of Economics, Tufts University.
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