Sensitivity Analysis of Oil Price Impact on Welfare and Public Good's Supply in Iran

The economies of oil-exporting countries, including Iran, are surprisingly affected by the oil revenue and, the world oil price. The aim of this study is to assess the impacts of oil price reduction on welfare and public goods supply, and sensitivity analysis of welfare changes in Iran. The GTAP model is used to simulate the policy shock. In the new data aggregation, Iran, oil-exporting countries, and the rest of the world countries as economic new regions, ten new created economic sectors which in them the oil introduced as one sector and, five endowments are aggregated. In the new economic closure, price is exogenous variable, and reduction in oil price is simulated in the model as a policy shock. The results show that a reduction in oil price reduced production factors earing, and reduced production and consumption of public and private goods and services. Using equivalent variation (EV), changes in welfare and utility of private and public sectors are negative, and sensitivity analysis shows that, by 95% of the confidence interval, the reduction in welfare is significant. Finally, deflation, reduction in GDP and changes in consumption combination from the public to the private sector, changing consumer tastes consumption of domestically produced rather than imported goods are the other impacts of reduction in oil price. Based on the results of the research, it is imperative for the government to seriously endeavor to stabilize or raise global oil prices.