Fiscal reforms in general equilibrium: Theory and an application to the subsidy debate in Iran

Firouz Gahvari, Farzad Taheripour

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Article number36
JournalB.E. Journal of Economic Analysis and Policy
Volume11
Issue number1
DOIs
StatePublished - 2011

Keywords

  • QUAIDS
  • compensating variation
  • fiscal interaction
  • fiscal reform
  • marginal reform
  • price subsidies
  • uniform rebates
  • welfare gain

ASJC Scopus subject areas

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

Fingerprint Dive into the research topics of 'Fiscal reforms in general equilibrium: Theory and an application to the subsidy debate in Iran'. Together they form a unique fingerprint.

Cite this