Energy Prices Increase, Welfare, and Government Expenditure: An Input-Output ExerciseModel

This paper investigates the impacts of an energy price increase on price levels, income distribution, consumer’ welfare and government expenditure. In doing so, it uses a static Input-Output approach in the context of the input-output table for Islamic Republic of Iran for the year 2004. An exogenous increase in energy prices, due to reduction in energy subsidies, increases the production costs and consequently increases the general price level. Such price increases, result in a consumer’ welfare reduction and affect the government expenditures. It defines a set of indirect utility functions, which then used to measure the change in welfare of households. A set of constant coefficients used to measure the increase in households’ budget and change in government expenditures. Two distinct scenarios defined for energy prices increase, the first is a once-for-all 100% increase in those prices, where and the second scenario assumes a once-for-all complete elimination of energy subsidies in Iran.