Publication: Trade, Foreign Exchange, and Energy Policies in the Islamic Republic of Iran : Reform Agenda, Economic Implications, and Impact on the Poor
Date
2002-01
ISSN
Published
2002-01
Author(s)
Jensen, Jesper
Tarr, David
Abstract
The Islamic Republic of Iran has
committed itself to substantial trade and market reform in
its Third Five-Year Development Plan. It started out with
nontariff barriers on all products, a dual exchange rate
regime with the market rate more than four times the
official rate, and domestic energy subsidies equal to about
90 percent of the cost of energy products. Many of these
policies were justified as helping the poor. To analyze the
effect of the reforms, separately and together, the authors
develop a multisector computable general equilibrium model
with 10 rural and 10 urban households. They find that the
combined reforms could generate welfare gains equal to about
50 percent of aggregate consumer income. These gains reflect
the large initial distortions-for example, energy subsidies
equal to about 18 percent of GDP, and retail energy prices
equal to about 10 percent of world market prices.
Separately, trade reform would lead to gains of about 5
percent of income, exchange rate reform to gains of 7
percent of income, and energy pricing reform to gains of 33
percent of income. The authors' results show that
well-intentioned commodity subsidy policies for the poor can
have perverse effects. Direct income payments to all
households (not just the poor) would vastly increase the
incomes of the poor compared with the status quo. Moreover,
if the combined reforms were implemented, the poorest rural
household would receive gains equal to about 290 percent of
its income, and the poorest urban household gains equal to
about 140 percent of its income.
Link to Data Set
Citation
“Jensen, Jesper; Tarr, David. 2002. Trade, Foreign Exchange, and Energy Policies in the Islamic Republic of Iran : Reform Agenda, Economic Implications, and Impact on the Poor. Policy Research Working Paper;No. 2768. © World Bank, Washington, DC. http://hdl.handle.net/10986/15730 License: CC BY 3.0 IGO.”
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