An Empirical Based Analysis of Economic Effects of Subsidized Gasoline on Its Consumption In Iran; (١٩٧١-٢٠٠٣)

Authors

1 Faculty member of Mazandaran University

2 PH.D. student in Mazandaran University

Abstract

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 ١٩٧١-٢٠٠٣", simultaneous equation
model is estimated applying I٣SLS. Evaluating results indicate that
there has been a positive and striking relationship between gasoline
subsidy and consumption: An increase about ١٪ in subsidy has
increased the consumption about ٠.٦٩٪ (percent). Each consumption
and subsidy equation explains approximately ٩٩٪ (percent) of the
consumption and subsidy flexibility. Therefore, based on the same
consumption equation, the fixed and also the least consumption
become e٧.٥١٨٨. In other words, for an increase about ١٪ (percent) in
gasoline subsidy, the consumption rate will increase up to ٠.٦٩٪
(percent). A ١٪ (percent) increases in gasoline consumption causes
٠.٧٧٪ (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 ٤th economic, social and cultural
plan and also in the ٢٠ years economic outlook package through
reduceing consumption, using effectively and saving financial
resources by government, we can expect more favorable economic
impact.

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