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

Firouz Gahvari and Taheripour Farzad ()
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Taheripour Farzad: Purdue University

The B.E. Journal of Economic Analysis & Policy, 2011, vol. 11, issue 1, 54

Abstract: 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.

Keywords: price subsidies; fiscal interaction; compensating variation; welfare gain; uniform rebates; QUAIDS; fiscal reform; marginal reform (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (9)

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DOI: 10.2202/1935-1682.2722

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