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How incentives matter? An illustration from the Targeted Subsidies reform in Iran

Author

Listed:
  • Stéphane Gauthier

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, IFS - Laboratory of the Institute for Fiscal Studies - Institute for Fiscal Studies)

  • Taraneh Tabatabai

    (Uber Amsterdam)

Abstract

We use the Targeted Subsidies Reform implemented in Iran in 2011 to recover empirically the social valuations of Iranian households relying on the assumption of optimal consumption and income taxes, for welfarist and non-welfarist poverty alleviation social criteria. Unlike the existing literature, we do not restrict attention to a specific pattern for the incentive constraints implied by nonlinear income taxation. Instead we recover this pattern by estimating the Lagrange multipliers associated with the incentive constraints. Before the reform we find evidence of redistribution toward the bottom poor income deciles that is limited by an incentive constraint where the rich envy the social treatment of the poor. At the outcome of the reform incentives no longer matter and the social welfare function of the government of Iran displays a Benthamite-like form.

Suggested Citation

  • Stéphane Gauthier & Taraneh Tabatabai, 2019. "How incentives matter? An illustration from the Targeted Subsidies reform in Iran," Post-Print halshs-01884357, HAL.
    • Handle: RePEc:hal:journl:halshs-01884357
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    Cited by:

    1. Zarepour, Zahra & Wagner, Natascha, 2022. "Cash instead of subsidy: Assessing the impact of the iranian energy subsidy reform on households," Energy Policy, Elsevier, vol. 168(C).
    2. Manuela A. de Paz-Báñez & María José Asensio-Coto & Celia Sánchez-López & María-Teresa Aceytuno, 2020. "Is There Empirical Evidence on How the Implementation of a Universal Basic Income (UBI) Affects Labour Supply? A Systematic Review," Sustainability, MDPI, vol. 12(22), pages 1-36, November.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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