The Effects of Agricultural Water Subsidy Reform on Agricultural Sector of Iran: Application of Computable General Equilibrium Model

During last decades, allocating subsidies to agricultural water has resulted in holding down the consumption price of water in this sector, So that it has made people overuse water and has imposed enormous costs to the government. Studying the economic impacts of reforming the agricultural water subsidy could act as a major step to determine the scenarios of reforming water price. In this study, the impact of reforming agricultural water subsidy on rural sustainable development was evaluated in the form of six scenarios, using the Computable General Equilibrium model. The results show that the reduction in agricultural water subsidies significantly reduces the consumption of rural households. On the other hand, it increases the price index and the cost of production in the agricultural sector. As a result, agricultural production decreased from -0/73 percent (109,636 billion Rls) in the first scenario to -5/33 percent (104,557 milliard Rls) in the sixth scenario. The government could compensate parts of the increased production costs through redistribution of income. It could also adjust the reduction in rural households.