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The Effects of Energy Subsidy Reform on Fuel Demand in Iran

Hossein Mirshojaeian Hosseini (), Vahid Majed and Shinji Kaneko
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Hossein Mirshojaeian Hosseini : Faculty of Economics, University of Tehran
Vahid Majed : Faculty of Economics, University of Tehran
Shinji Kaneko : Graduate School for International Development and Cooperation, Hiroshima University

Journal of Money and Economy, 2015, vol. 10, issue 2, 23-47

Abstract: To prevent further increases in energy consumption, the government of Iran commenced energy subsidy reform in 2010. This paper investigates the fuel conservation effects of the reform in Iran using a homothetic translog cost function that provides estimates of the own- and cross-price elasticities of fuel demands. The percentage reduction in fuel demands is estimated using the likely effect of the reform on fuel prices. The results reveal that the reform may not be as successful as assumed. Under optimistic assumptions, the reform may reduce energy consumption marginally, and under pessimistic assumptions, it may increase energy consumption because of inelastic fuel demands and substantial substitution between fuels.

Keywords: Energy subsidy reform; Fuel demand; Iran; Translog cost function (search for similar items in EconPapers)
JEL-codes: C32 Q38 Q43 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mbr:jmonec:v:10:y:2015:i:2:p:23-47

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