Subsidy Reform, Cash Payments, and Welfare of Iranian Households

Abstract This study reviews the direct and indirect effects of higher energy and bread prices (due to removing their subsidies and paying their equivalent in cash instead). Therefore, all consumer goods were classified into 6 groups and a linear expenditure system was estimated based on households’ budget data of 2009 and 2011 for urban and rural areas separately. The results indicate that high-income households have lost more welfare than the low-income households; in other words, the cash subsidies for low-income households are more adequate to compensate for higher costs of living but severely inadequate for high-income households. These cash subsidies are very important for low income families.