Energy and labour reform: Evidence from Iran

Omar AlShehabi ()

Journal of Policy Modeling, 2012, vol. 34, issue 3, 441-459

Abstract: Taking Iran as a case study, we analyze the effects of eliminating crude oil and fuel subsidies on the labour market using two alternative policy options. The first redistributes additional revenue as extra income to households, while the second directs revenue into increased investment. We investigate immediate versus gradual subsidy removal, focusing on the transition dynamics at play. A purpose-built dynamic Computable General Equilibrium model is deployed with a unique Social Accounting Matrix of Iran. It is shown that rebating the extra revenue to households would adversely affect the labour market. Industries and employment contract due to the Dutch Disease effect and the more expensive fuel inputs. Channeling extra revenue into investment, however, considerably improves the labour market's fortunes in the long run via increased capital accumulation and shifts in industrial composition. Gradual subsidy removal allows for a smoother transition that minimizes short-run costs in the labour market.

Keywords: Unemployment; Oil; Energy; CGE; Subsidies; Iran (search for similar items in EconPapers)
JEL-codes: C68 E24 H50 J23 O53 Q43 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:34:y:2012:i:3:p:441-459

DOI: 10.1016/j.jpolmod.2011.09.003

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