An Empirical Based Analysis of Economic Effects of Subsidized Gasoline on Its Consumption In Iran; (1971-2003)

This paper mainly focuses on evaluating economic effects of subsidized gasoline on its consumption in Iran. Using time series data for the period of time "through 1971-2003", simultaneous equation model is estimated applying I3SLS. Evaluating results indicate that there has been a positive and striking relationship between gasoline subsidy and consumption: An increase about 1٪ in subsidy has increased the consumption about 069٪ (percent). Each consumption and subsidy equation explains approximately 99٪ (percent) of the consumption and subsidy flexibility. Therefore, based on the same consumption equation, the fixed and also the least consumption become e75188. In other words, for an increase about 1٪ (percent) in gasoline subsidy, the consumption rate will increase up to 069٪ (percent). A 1٪ (percent) increases in gasoline consumption causes 077٪ (percent) increases in gasoline subsidy rate. To sum up, the increase in subsidy during the mentioned period is the main reason for gasoline consumption rate. Based on our findings, it is concluded that by implementing the guided subsidy policy in the Iran’s 4th economic, social and cultural plan and also in the 20 years economic outlook package through reduceing consumption, using effectively and saving financial resources by government, we can expect more favorable economic impact.