Policy analysis of the impacts of removing the gasoline subsidy on the producer price indices of private and public healthcare sectors: A structural path analysis approach

Energy is one of the most important production factors. Before the implementation of the plan for energy subsidy removal in Iran, the largest share of the subsidized energy resources was allocated to the transportation sector. This sector was the most important energy-intensive sector. The largest amount of energy subsidies in this sector was allocated to gasoline. After an increase in the price of energy, a reduction in energy consumption was expected through improving the efficiency of production sectors and consumption methods. However, after the energy subsidy removal, little change occurred in the energy consumption by economic sectors. The healthcare sector, as a very important sector, has always been influenced by various economic shocks, including energy sector shocks. The energy-intensive activities of hospitals and other health care centers, in addition to increasing energy prices, had great impacts. Therefore, studying the impacts of the policy for energy subsidy removal on healthcare sectors seems necessary.

This study uses the Structural Path Analysis (SPA) approach. to explore the impacts of removing gasoline subsidy on the producer price index of private and public healthcare sectors. The SPA approach explores the direct and indirect effects of a unit of increase in an exogenous account on the cost index of endogenous accounts. Additionally, it identifies the structural paths. In order to investigate the effects of the subsidy removal plan on the producer price index of healthcare sectors and analyze the structural paths, an energy SAM in the healthcare sectors is required. This study uses the energy SAM of 2006, where the healthcare sectors are integrated into the other service sectors. Therefore, healthcare sectors are extracted from the other service sectors based on their ratios in the input-output table of 2001. In order to explore the structural path, the SIMSIP SAM software of the World Bank is used.

The results indicate that a 269-percent increase in the gasoline price has led to 8.95 and 7.79 percent increases in the producer price indices of the public and private healthcare sectors, respectively. The largest total effect of one-unit reduction in the gasoline subsidy has been 9.04, which relates to the other public healthcare activities. Overall, the direct effect of reduction in the gasoline subsidy is rather small, and more impression is transferred through "indirect paths".Gasoline subsidy removal has had the largest effects on the transportation and post sector, the producer price index of which has increased for 18.19 percent. As a result, households have had to pay higher prices, which has caused an increase in the cost of the living index of households (especially urban households, due to the use of various means of transportation). Households provide the labor of the economy and are the owners of the capital. To keep their welfare level (using the previous portfolio), they ask higher wages and salaries (i.e., increase in the factor of production index). Then, the cost of production activities, including public and private health activities, increases. This cycle is repeated. Changing in the energy subsidy creates a cycle, which affects different components of the economy. Parts of the cycle can be seen in indirect paths.

This study shows that the implementation of the price policy of gasoline subsidy removal has led to an increase in the producer price index of the private and public healthcare sectors through various socio-economic paths. As observed, a unit of reduction in the gasoline subsidy has the largest overall effect on the other public healthcare activities (0.0167). Two main paths, including "Gasoline, Urban Household, Enterprises, Operational Surplus, Other Public Healthcare Activities", and "Gasoline, Transportation and Post, Urban Household, Urban Labor Income, Other Public Healthcare Activities" have the largest price coefficients in the price transfer from gasoline to the other public healthcare sectors. Therefore, an increase in the price of gasoline had led to an increase in the cost of living index and the factor of production index, and it reaches the healthcare sector. It has also affected the transportation and the post price index. It is suggested that the ministry of health try to adjust the effects of the economic shocks, especially about the public healthcare sector due to its larger coefficients.Additionally, the importance of healthcare sector products is obvious for all, due to the growing need for health services in the community. Nowadays, the trend of diseases has changed to non-communicable diseases. Frequent doctor visits and the use of expensive medications sometimes for the life time of an individual may be experienced in the case of various chronic diseases. Many people are unable to afford the high cost of health services and may not continue their treatment if there is any increase in the price of health services. Therefore, it is necessary to pay special attention to the effects of policies on the healthcare sectors and to find solutions for any negative impression in the society.