Tragetization of Subsidies: Necessity of Having a Systemic View

The experience of high rise in prices of energy derivatives aimed at reforming economic structure has been one of the most important economic policies of Iranian government especially during the last three years. Households, firms and government budget have particularly been affected. Its non-economic impact has been much more serious and widely spread. Following historical and analytical approach in this paper, we look at the rentier state argument to substantiate our discussion on this important phenomenon in Iran. Our finding indicate that policy prescription offered produce contrary result leading to vicious circle of stagflationary tendencies and strengthening path dependency on oil rents. Thus, despite acknowledging its harmful impact, it seems imperative on the part of policy makers and government authorities to rely on oil rent and path dependency continues.