نشریه اقتصاد و برنامه ریزی شهری
سال دوم شماره 8 (زمستان 1389)

The “targeted subsidies” plan is known to be one of the most important economicplans having been implemented since the Revolution. The structure of the economy ofIran, during years, has got used to low prices and has laid its production foundation,accordingly. With the change in the energy price, the production sections, eitherin goods production or service offering, would make a gradual transition from oneequilibrium point to a new one. It is necessary that the government, in such a transitionprocess, facilitates reaching the new equilibrium point for all economic sectionsvia implementing compensatory policies. Municipalities, as institutions which takeimportant roles both in production section and in offering urban service, are by no meansan exception; they have a structure for their expenses which takes important effectsfrom the fluctuations in energy price and inflation rate. Furthermore, the changes inconstruction market and the city economic growth would make special changes in theincome earning of such an institution. This article attempts to recognize and evaluatethe effects of the changes in energy price on the expense structure of the municipalities;it goes without saying that the made calculations are indicative of the potentials forprice raise. In case the government implements any price-fixing policy, the obtainedresults could be moderated. However, if the government interference in price-fixingprocess is prevented, such potentials would be realized. The first part of the articleoffers methodology and some theoretical issues and the second part explicates thepreliminary estimates of the expense structure of the urban service and the effects oftargeted subsidies on the expense structure. Then, the question “are the municipalitiesable to compensate for such effects via increasing their income?” is raised. So, the thirdpart of the article investigates the future status of municipality income emphasizing theincome from the real estate. At the end, results and conclusion will be offered.

In all countries, the government makes efforts to alleviate or eradicate privationsin the country via promoting social welfare and creating new employment in theunderprivileged areas. In order to determine the extent of the privation at differentlevels – national, regional, urban, and local – different methods could be devisedand applied each of which utilizes different indices. However, due to the differencebetween developed and developing countries, similar methods cannot be used in allcountries. Thus, it seems necessary to devise new indices to investigate and evaluatethe extent of the privation at different levels. In this article, the privation status in thecountry, between the urban and rural communities, has been investigated via using anew index. The comparison between the outputs produced by the index indicates thatthe devised index offers accurate results; hence, it can be used to evaluate the privationextent at regional level.

An increase in the energy price (due to the targeted subsidies plan) impacts on theexchequer system of the municipalities in terms of the income and the expenses. As faras the income of municipality is concerned, the income from the construction section,as the most important factor in the municipality income, would be reduced. Based onthe calculations, the enforcement of targeted subsidies law would reduce the incomefrom construction section to an amount equal to 5.5 thousand billion Rials (around 550million dollars) provided that no change is made in other factors. Further, in case the useof energy does not have any change (and is the same as the year 1388), the municipalityincome from the VAT Act would have a 1.4-thousand-billion-Rial increase. The resultsof the research indicate that a sharp rise in energy price would cause an 855-, 186-,and 2470-billion Rial increase in personnel expenses, subway plan expenses, andconstruction expenses, respectively. In total, the municipality expenses, for the verythree items, would increase to an amount equal to 3.5 thousand billion Rials (around350 million dollars), 70 percent of which is related to construction expenses. Therefore,the municipality of Tehran, by taking into account just two sources of income andthree expenses items, would face a 7.6 thousand billion Rial budget deficit (around760 million dollars) which comprises 19 percent of the cash budget and 10.1 percentof the total budget of the municipality of Tehran. In case the results are generalizedto all expenses and income items of the municipality of Tehran, the expense effect ofthe targeted subsidies would amount to 23.6 thousand billion Rials (around 2.4 billiondollars) which comprises 32.17 percent of the total budget and 44.3 percent of the cashbudget of the municipality of Tehran.

During the last three decades, housing-provision policies have undergone fluctuations.In recent years, the government, having taken a social approach to housing provision,has endeavored to reduce housing end-cost via offering state-owned land and, hence,subtracting the land cost from the total housing cost. This policy, known as “Mehr”Housing, has been more successful in villages and small cities than in large cities. Lackof state-owned lands of appropriate area for mass-housing purposes in the metropolisof Tehran has resulted in making the policy of providing housing in satellite towns andin time-worn urban textures. However, lack of proper transportation infrastructure andthe far distance between satellite towns and the metropolis of Tehran have influenceson the time waste and transport cost of those who are residing in new towns. Thetargeted subsidies make a manifold increase in energy price including the price for themeans of transport fuel and, therefore, commuting cost between satellite towns and themain city increase as well. This article attempts to investigate the difference betweenthe residents of “Mehr” housing project in satellite towns and in time-worn urbantextures in terms of their house-building cost, transport cost, and time-waste cost whilecommuting between house and workplace and also the impact of targeted subsidies on“Mehr” housing project for residents of Tehran is probed.

Subsidies are offered for maintaining balance in the distribution of income, reducingthe effects of the pressure of market on the consumers, and for reducing the productioncosts as well as supporting the producers. The purpose for paying subsidies is efficientallocation of the resources, fixing the prices, maintain balance between supply anddemand, and redistribution of the earned income. What paying subsidies have inconsequence is the encouragement and growth of the sections of the economy whichhave received subsidies in contrast to the ones having been deprived of them. Therefore,paying subsidies is a part of supporting policies of the government to modify anddirect economic trends, as there are a lot of factors causing lack of balance betweendifferent sections of production, distribution, consumption, and business. In additionto the economic aspects of subsidies, due to the utilization of a large group of peopleof consumer subsidies and the tangibility of them for the people, they have politicaland social aspects and the purpose for granting subsidies is modifying the consumers’behavior. Regarding the fact that paying subsidies is one of the supporting instrumentsprovided to neutralize the lack of balance in the economy of families, it is possible thatit can bring about lack of balance. To increase the purchasing power of the consumersand/or to increase the producing power of the producers and controlling the negativeeffects on the consumers, the government or the agent organization pays subsidies tothe corresponding sections. As a result, subsides provide support for paying a part ofthe total cost of a product or service which are granted by the government. In otherwords, they are direct or indirect governmental payments, or economic privilegeswhich are given to private institutions, households, and other governmental sectionsso that the intended purposes of the government are achieved. Moreover, subsidies arefinancial supports or other equivalent supports which are given to a certain serviceeven though such a service is not economical, profit-wise. However, for public welfareit is necessary that the government offers free financial supports to its affiliated bodies,which is also referred to as granting subsidies.

In recent decades, the distribution of subsidies, with the aim of keeping the generallevel of prices low and promoting the welfare of the consumers, as well as the wideownership of the government of the economy has impeded the required dynamicityin the economy in a way that the large volume of governmental support (around 26percent of the GDP) caused a lot of trouble for the government and the NNP, duringthe last three decades, did not show a noticeable increase. The mentioned reasons andmany others in the article necessitated the implementation of the plan for targetedsubsidies. This article includes four sections. In the first section, an introduction tothe urgency and importance of implementing the Act is provided. In the second part,a general definition and introduction of the Act of targeted subsidies are offered. Thethird part of the article explicates the effects of targeted subsidies on the economy ofthe country and provides samples from the countries which have implemented such anAct and shows the effects the implantation of such an Act has had on their economy.At the end, suggestions are made for better implementation of such a large economicplan.