The impact of subsidies reform on the inequality of welfare in Iran (CGE Modelling and Equivalent Variation (EV) Index)

One of the main objectives of the government intervention in the economy is to improve equality indices in the society. The economic policy's effects on the justice indices in the society is important for economic authorities. In this paper, a CGE model and Equivalent Variation index (EV) are used to forecast the impact of subsidies reform on the equality of welfare. CGE models with numerical simulations of economics in a Social Accounting Matrix (SAM) form are able to assess effective forces on household welfare and also provide a clear numerical perspective of economic policy effects. To evaluate research topics, ten different scenarios of subsidies reform are simulated in two sections. In the first part of the study, indirect subsidies are removed in stages and in the second part, indirect subsidies are removed completely and then are repaid with different ratio to households, manufacturing sectors and government institutions directly in five scenarios. The results predict that by subsidies reform, reduced the welfare gap between households in all scenarios and the equality of welfare of the society is improved. One of the most important results of the paper is that more the subsidies share of governments and manufacturing decrease, the equality index in society will be greater. As well as the comparison of the examined scenarios suggest that, the inequality of welfare index in the repaid directly subsidy rather than scenarios without pay, decreases.