An Analysis of the Effect Reducing the Food Subsidy on Income Inequality

Nowadays in our country a great amount of the subsidy goes to food. Because of the high population growth and the good and service price increase in the world market a considerable financial pressure is imposed upon the government. Therefore taking an appropriate policy to face this problem is inevitable, so the purpose of this study is to examine the effects of the income inequality caused by the reducing the subsidy of the main goods، on Iran’s rural and urban consumers. The effects of the income inequality caused by the price increase of the selected goods was examined through different scenarios of reducing the subsidy with the two "g" and "h" distribution indices and Atkinson index. Studying the changes of the income distribution indexes shows that the scenario of increasing the price of all goods simultaneously influences the urban households of the average income group more than the rural consumers, while the effect on the households of the average income group is more than the effect on the low income group households in both rural and urban areas.