The Effects of the Energy Price Reform on Households Consumption in Iran

Energy Policy, 79 (2015)

Posted: 24 Feb 2015

See all articles by Saeed Moshiri

Saeed Moshiri

Saint Thomas More College University of Saskatcehwan

Multiple version iconThere are 2 versions of this paper

Date Written: February 23, 2015

Abstract

The substantial subsidizing of energy prices over the years has led to high energy consumption, inefficiencies, fiscal pressures, and environmental problems in Iran. To address the increasing socio-economic problems associated with the energy subsidies, the government embarked on an aggressive energy price reform through which energy subsidies were removed and cash handouts were given to all households in 2010. In this paper, I analyze the effectiveness of the energy price reform in Iran by estimating energy demand elasticities for households in different income groups. I apply a two-stage consumer optimization model and estimate the system of energy expenditures shares using the household budget survey data for the period 2001-2008. The results show that the overall price elasticities of demand are small, but income elasticities are close to one. The results also indicate heterogeneous responses to energy price and income changes in different income groups. Specifically, the urban households show stronger response to price changes, but rural households, particularly mid-income households, to income changes. These findings suggest that the current policy of price increases would not solely be able to reduce energy consumption and, therefore, it should be geared towards increasing energy efficiency through a series of price and non-price measures.

Keywords: Energy, price reform, subsidies, elasticity, households, Iran

JEL Classification: D12, Q41, Q48, R21

Suggested Citation

Moshiri, Saeed, The Effects of the Energy Price Reform on Households Consumption in Iran (February 23, 2015). Energy Policy, 79 (2015). Available at SSRN: https://ssrn.com/abstract=2568749

Saeed Moshiri (Contact Author)

Saint Thomas More College University of Saskatcehwan ( email )

1437 College Dr
Saskatoon, Saskatchewan S7N 0W6
Canada

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