Theoretical Analysis of Gasoline Pricing Policies in Iran: Challenges and Solutions

Gasoline pricing policy has always been a challenging issue and it has wide economic, political and social dimensions in Iran. In this study, first, the current policy of gasoline pricing has been examined based on analytical and descriptive approach. Then, new pricing scenario is proposed to reduce the harm caused by the current policy. The results show that the current gasoline pricing policy is separate from the economic situation and leads to over-consumption of gasoline, increased polluting emissions, more unfair distribution of subsidies, and increased incentives to smuggle fuel. To address the current price disadvantages and the social consequences of price reforms, a consumption tax policy is recommended as a suggested solution. Under the proposed policy, the price of gasoline is completely affected by the quantity consumed and the more fuel consumed is associated with higher costs rather than larger subsidies. In this policy, the incentive to smuggle fuel, which is associated with high fuel consumption, is greatly reduced because higher fuel consumption is provided at regional prices. Furthermore, consumers with low consumption (less than 80 liters per month) earn more well-being than the current policy and the proposed scenario is expected to be socially acceptable to people.