The Welfare Effect of Subsidy Elimination in Basic Goods

Subsidy payment is important for both decision makers and Economic authorities. The subsidy payment for bread and other basic goods (meat, oil, sugar, dairy product and other foods) have the main share in whole subsidies, and revising subsidy system is necessary.
This paper evaluates the effect of subsidy elimination in basic goods. In this survey, the researchers estimate food subsistence level by using Linear Expenditure system. This study used household data from Statistics Center of Iran during 1997-2008 period.
In this survey, the researchers first estimated demand for basic goods and then calculated price and income elasticity and finally calculated Compensation Variations and Equivalent Variations for urban households.
Results show that food subsistence level for Iranian household in 2008 is 10507959 rails. Furthermore, based on the calculated Compensation Variations and Equivalent Variations of food groups in 2007, food price changes respectively have 17.8 and 17.7 percent of food expenditure.