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

Stephane Gauthier and Taraneh Tabatabai
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Taraneh Tabatabai: UP1 - Université Paris 1 Panthéon-Sorbonne

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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 taxes. Unlike the existing literature, we do not restrict attention to a specific pattern for the incentive constraints associated with nonlinear income taxation. Instead we recover the Lagrange multipliers corresponding to these constraints. We find evidence of a significant redistribution toward the bottom three deciles of the income distribution before the reform. This redistribution is however 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.

Keywords: Principal-agent; incentive constraints; Iran; Targeted Subsidies; social valuations; AIDS; D82; H21; L51 (search for similar items in EconPapers)
Date: 2017-06
New Economics Papers: this item is included in nep-ara and nep-cwa
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01545856v1
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Related works:
Journal Article: How incentives matter? An illustration from the targeted subsidies reform in Iran (2019)
Working Paper: How incentives matter? An illustration from the Targeted Subsidies reform in Iran (2019)
Working Paper: How incentives matter? An illustration from the Targeted Subsidies reform in Iran (2019)
Working Paper: How incentives matter ? An illustration from the Targeted Subsidies reform in Iran (2017)
Working Paper: How incentives matter ? An illustration from the Targeted Subsidies reform in Iran (2016)
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