An Investigation on the Share of Rural and Urban Households’ Expenditure as A Basis to Determine Economic Policies for Iran

Many countries implement plans and programs whose purpose is low-income class protection and increase the purchasing power in order to eradicate poverty. The most common plan is the subsidies payment for consumption of deficits. Governments provide inexpensive goods and services and help to make price stability for necessities by applying policy in consumption sector. This research studies consumption expenditure shares in rural and urban households according to the importance of this issue and accordingly expenditure shares are rated and it is the basis of targeting subsidy policy. This article by use the MICROFIT program (ARDL method, 42 observations used for estimation from 1977 to 2019), tries to survey the short and long-term relationship, the dynamic relationship of short-term trend toward long-term equilibrium, diagnostic and structural break tests for the variables and the household costs function. According to the results of statistic tests, the model presented the best possible status of classic hypotheses and statistics and therefore confirm the relationship and co-integration between the variable of cost function and finally, structural stability is accepted. By comparing the urban household costs, according to the results we can say that the food is ranked among the goods with low rank, therefore, targeting the subsidies is less important than the rest of the cost. Also, the cost share of clothing goods is totally high for households and in urban households’ expenditures, the cost share of these goods is higher than the rest, so these costs play an important role in targeting the subsidies and should be taken into consideration. By comparing the rural household costs, we can say, the contribution of educational, cultural and recreational services costs for rural households is high and thus the share of the allocated expenditures for such goods is higher than the rest. Therefore, these costs play an important role in targeting the subsidies and should be taken into consideration. Finally, targeting subsidy helps government to arrange subsidy rate of different goods correctly. and give the most to low income classes to boost social welfare. Result show that targeting subsidy in rural and urban is different because of different expenditures share in household budget, and the same economics policy for these two household types is not correct. JEL Classification: C13, D10, E20, H24, H71