The Effect of Subsidy Reduction in Agriculture Sector and the Changes in Labor Tax on Sectoral Production and the Revenues of Urban and Rural Households in Iran

This article exploits the conventional micro and macroeconomics relations such as production functions, costs and so on, in order to simulate Iran's economy in the form of a computable general equilibrium model. We use the Mixed Complementarity Problems (MCP) technique along with the GAMS software & its modeling process. The purpose of this study is to investigate the consequences of both decreasing the agricultural sector (agricultural activities) subsidy, and the changes of the labour tax on the sectoral production and revenue of urban and rural households. This purpose we use the latest social accounting matrix (1375). The results reveal that the reduction of agricultural sector subsidy will have a negative impact on the production of all other sectors. However, for agriculture sector the percentage of this negative impact is more significant than other sectors. Also its negative impact on the urban and rural revenue is considerable. The same situation is encountered for the changes in the labour tax. A rise of the laboure tax has negative impact on all other sectors but its reduction does not have any considerable positive impact on them.