The Effect of Electricity Pricing Policies on Employment and General Price Index of Different Economic Sectors in Iran

In this study, we evaluate the effect of electricity pricing policies on employment and general price index of different economic sectors in Iran, through use of the computable general equilibrium model (CGE) and the Social Accounting Matrix (SAM) for 2006. The study makes use of the GAMS software. The results of this study show that the general price index of different economic sectors increases as the controlled electricity prices are raised. Our simulations indicate that in the case of a sudden increase in electricity prices by 400 percent or even more, there would not be sufficient time for substituting one production factor with another. As a result in this scenario the model foresees a substantial decrease in employment in all the three sectors of industry, agriculture and services. However, a gradual increase in prices allows time for economic agents to find substitutes for higher cost production inputs and hence is actually accompanied by an overall increase in employment withminimal disturbances to the equilibrium point of every sector. We can therefore conclude that gradual increases in prices are preferable to a sudden increase.