The Effects of Food Subsidy Reform on Production and Production Factors in Iran: Application of Computable General Equilibrium Model

The major part of the subsidy in Iran is general and not targeted and it is believed to be ineffective and costly. In recent years, the government has taken steps toward reforming food subsidy. The aim of this study was to investigate impacts of Iranian food subsidy reform policies on production and share of production factors using Computable General Equilibrium Model. (CGE). The results showed that cash food subsidy would increase production in non-agriculture sector. Cash and food stamps subsidies would reduce share of labor income that cause production in various sectors to reduce. Also targeting and non-targeting food subsidies cause a slight increase in share of capital income. It is suggested that in implementing subsidy reform their effects on macroeconomic variables should be considered. Finally, targeted food subsidy programs were recommended because they had least negative effects on production and would reduce government expenditure substantially.