Impact of Consumption Subsidies on Income Distribution; A Case Study of Kurdistan Province

Subsidies payment is a supportive government policy to secure social and economic sectors of the community. On the consumer’s side, the main purpose of subsidies payment is to improve distribution of income across population deciles and household welfare enhancement by increasing access to goods and services. On the producer’s side, subsidies are being paid for better allocation of resources and reduction of production costs. The important issue, is that whether fiscal policies including subsidies payment could positively change the income distribution status of the society? For this purpose, the study was to investigate the performance of commodity subsidies on income distribution in Kurdistan province of Iran, using time series data of household’s income deciles of the province for the years 1983 -2010. To analyse the data, the ordinary least squares method (OLS) was used to estimate the proposed model. The results show that three variables including basic commoditie’s subsidize, employment rate and direct taxes have positive and statistically significant effect on income distribution of Kurdistan househollds, while inflation rate and per capita gross product have negative and statistically significant effect on income distribution of the province.