Study the Effect of Subsidy on the Household Demand of Water in Qom

This paper studies the effect of subsidy on household demand of water and consequently estimates long term demand function of water for household use in Qom. To this end, we used monthly time series data from 2008 to 2010. The theoretical principles indicate the general form of demand function of water which extracted from maximization of Ston-Gray utility function. At the next step, the demand function of urban water for Qom was estimated by implementing vector auto-regression and a basis of Johansen-Juselius method. It worth to mention that the selected period for the study is related to the period prior to the enforcement of cash subsidy law (Direct Subsidy) and just covers the issue of subsidy on water price. Results show that a decrease in or an elimination of subsidy on water price leads to a decrease in water demand of household section. Besides, the demand of urban water in Qom has an inverse relationship with the price of water and other goods according to the economic theories and has a direct relationship with income. The demand for urban water in this province has no attraction with respect to the prices of water and other goods and it is also a necessary good according to resulted income. Moreover, the minimum consumption of household water of Qom citizens is 42 liters per day with considering the elimination of price subsidy.