The Vital Role of Cash Transfers: Lessons from the Largest Energy Subsidy Reform in the Developing World

Abstract

This paper examines the effect of cash transfers during the 2010 energy subsidy reforms in Iran, which provided monthly lump-sum payments to Iranian citizens, excluding non-Iranian residents. We show that the reform generates a 17% income gap and a 12% poverty rate gap between cash and non-cash recipients, leading to a nutrition gap and changes in parental behaviors affecting children. Health data reveal a growth gap for children exposed to the reform early in life, especially among low-income groups. Counterfactual analysis shows that without transfers, cash recipients would share similar poverty rates and income distributions with non-cash recipients.

Keywords: Energy subsidies reform, Poverty, Children's Health

JEL Classification: H23, H31, H51, I14, I15