The Impact of Cash Subsidy on Expenditure Pattern of Urban and Rural Households in Iran

The consumption pattern of typical household is a combination of quantities, qualities, acts and tendencies describing use of resources for survival, comfort and enjoyment by society or a group of people. In this paper, we examine the impact of cash subsidies on expenditure pattern of households after implementing Subsidy Targeting Project at both urban and rural levels in Iran. We estimate a panel data model by applying data on household income and expenditure survey (HIES) during 2004-2014. Findings indicates that paying cash subsidies significantly affects all 14 expenditure categories in urban and rural households, except for health expenditure in rural households. Consequently, the shares of eight urban expenditure categories and nine rural expenditure ones have increased, while the shares of six urban expenditure categories and four rural expenditure ones have decreased. In all cases except for home durable goods, the shares of urban and rural expenditure categories, the shares of other household expenses and transfers changed in a same direction. In both urban and rural levels, all increased shares of expenditure are related to current household’ welfare, but the shares of categories which increases future household’ welfare have decreased. It seems changes in relative prices after paying cash subsidies have persuaded households to sacrifice some investment, education, and health expenditure for additional expenditure required for meeting basic needs.