Distributional Consequences of Subsidy Removal from Agricultural and Food Industry Sectors in Iran: A Price-based SAM Analysis

Authors
V. Ansari 1
H. Salami 1
T. Veeman 2
1 Department of Agricultural Economics, University of Tehran, Karaj, Islamic Republic of Iran.
2 Department of Resource Economics and Environmental Sociology, University of Alberta, Canada.
Abstract
This paper explores the distributive impacts of subsidy removal in agricultural sectors and related industry in Iran, using a social accounting matrix (SAM)-based price model. The structural path analysis approach is used to decompose the overall influences into direct, global, and total effects. The simulation results reveal that a shock therapy strategy, which involves the removal of all subsidies from all food producing sectors at once, amplifies the adverse effects of this policy option, especially on the low income households. Also, results indicate that removing subsidy from food producing sectors has distributional consequences for the Iranian households. The rural low income group is the most adversely affected group while the urban high income group is the least affected among the Iranian households. In addition, reducing subsidy in food industry sector has the largest impact on the households’ welfare. Based on the results of the path decomposition of the households’ expenditure, it is expected that less than 50 percent of the overall effects of subsidy removal appear almost immediately after implementing this policy.

Keywords

1. Amjad, R. and Kemal, A. R. 1997. Macroeconomic Policies and Their Impact on Poverty Alleviation in Pakistan. Pak. Dev. Rev., 36: 39-68.
2. Bhanumurthy, N. R. and Mitra, A. 2004. Economic Growth, Poverty and Reforms in Indian States. Institute of Economic Growth, University of Delhi Enclave, North Campus, Delhi-110 007, 21 PP. Retrieved May 17, 2010 from http://www.iegindia.org/workpap/ wp247.pdf.
3. Central Bank of Iran, The Economic Time Series Database, Retrieved March 20, 2012 from Tsd.cbi.ir/display/content.aspx.
4. Chirwa, E. W. 2005. Macroeconomic Policies and Poverty Reduction in Malawi: Can We Infer from Panel Data?. Paper Presented at Macroeconomic Policy Challenges in Low Income Countries Conference, International Monetary Fund, February 15-16, Washington, DC. Retrieved May 19, 2010 from http://imf.org/external/np/res/seminars/2005/macro/pdf/ chirwa.pdf.
5. Davies, R. and Rattsø, J. 2000. Zimbabwe: Economic Adjustment, Income Distribution and Trade Liberalization. SCEPA Working Papers 2000-11, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
6. Defourny, J. and Thorbecke, E. 1984. Structural Path Analysis and Multiplier Decomposition within a Social Accounting Framework. Econ. J., 94: 111-136.
7. Dini, A. and Lippit, V. 2009. Food Subsidies, Growth and Poverty : A Critique on Neoliberal Institutional Structure. Working Paper, n° 09-12, Economics Department, University of California-Riverside, October, Riverside, 14 PP. Retrieved May 19, 2010 from http://economics.ucr.edu/repec/ucr/wpaper/09-12.pdf.
8. Gazon, J.1976. Transmission de l’Influence Economique. Une Approache Structurale. Collection de l’I.M.E., No 13, Sirey, Paris.
9. Iqbal, Z. and Siddiqui, R. 1999. The Impact of Structural Adjustment on Income Distribution in Pakistan: A SAM Based Analysis. MIMAP Technical Report No.2, PIDE, Islamabad, Pakistan.
10. Kemal, A. R. 1994. Structural Adjustment, Employment, Income Distribution and Poverty. Pak. Dev. Rev., 33: 901–911.
11. Kemal, A. R. 2001. Structural Adjustment, Macroeconomic Policies and Poverty Trends in Pakistan. Paper Presented at Asia and Pacific Forum on Poverty: Reforming Policies and Institutions for Poverty Reduction, Held at the Asian Development Bank, February 5-9, Manila. Retrieved May 18, 2010 from http://www.adb.org/Poverty/Forum/pdf/Kemal.pdf
12. Lantner, R., 1974. Theorie de la dominance economique. Paris.
13. Nwafor, M., Ogujiuba, K. and Asogwa, R. 2006. Does Subsidy Removal Hurt the Poor?, SISERA Working Paper Series n° 2. Retrieved May 17, 2010 from http:// pdf.usaid.gov/ pdf_docs/PNADH630.pdf.
14. Pyatt, G. and Round, J. I. 1979. Accounting and Fixed Price Multipliers in a Social Accounting Framework. Econ. J., 89: 850-873.
15. Roland-Holst, D. W. and Sancho, F. 1995. Modeling Prices in a SAM Structure. Rev. Econ. Stat., 77: 361-371.
16. Stone R. 1985. The Disagregation of the Household Sector in the National Accounts, In: "Social Accounting Matrices: A Basis for Planning", (Eds.): Pyatt, G. and Round, J. I.. World Bank, Washington, pp. 85-145.
17. Statistical Centre of Iran (SCI). 2006. Input-output of Iran, 2001. Tehran, Iran.
18. Statistical Centre of Iran (SCIa), 2002. The Survey of Rural Household’s Expenditure, 2001 Tehran, Iran.
19. Statistical Centre of Iran (SCIb). 2002. The Survey of Urban Household’s Expenditure, 2001. Tehran, Iran.
20. Tambunan, T. 2005. Linkages between Macroeconomic Reform Policies, Shocks, and Poverty Reduction: The Indonesian Case. Paper Presented at Macroeconomic Policy Challenges in Low Income Countries Conference, International Monetary Fund, February 15-16. Washington, DC. Retrieved May 19, 2010 from http://www.imf.org/external/np/res/seminars/ 2005/macro/pdf/tambun.pdf.
21. Townsend, R. F. and McDonald, S. 1998. Biased Policies, Agriculture and Income Distribution in South Africa: A Social Accounting Matrix Approach. J. Stud. Econ. Econom., 22(1): 91-114.
22. White, H. 1997. The Economic and Social Impact of Adjustment in Africa: Further Empirical Analysis. Working Paper, Institute of Social Studies, Netherlands.
23. Para, J. C. and Wodon, Q. 2008. Comparing the Impact of Food and Energy Price Shocks on Consumers: A Social Accounting Matrix Analysis for Ghana". Research Working Paper 4741, World Bank Policy. Retrieved May 16, 2010 from http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2008/10/01/00015834920081001124010/Rendered/PDF/WPS4 741.pdf
24. Youssef, M. H. 2008. Role of Food Subsidies on Poverty Alleviation in Egypt. Retrieved May 20, 2010 from http:// www.saaid.net/ Doat/hasn/147.pdf.
Journal of Agricultural Science and Technology
Volume 16, Issue 1
January and February 2014
Pages 1-19