Meditation on second phase enforcement of the targeted subsidies law with focusing on energy share in GDP using a Dynamic Stochastic General Equilibrium model

This study employs a dynamic stochastic general equilibrium (DSGE) model for energy demand side, in order to estimate the energy share of non-oil production and investigate the effects of energy price shocks on production and inflation. The results show that, the share of energy in production is 12.1 percent in Iran which is 8 times higher than of European countries. In addition, positive shocks of energy price have negative effects on production and also these shocks have positive effects on inflation and money supply. These results emphasize the significant role of energy in non-oil production in Iran which in turn is the relative advantages of cheapness and abundance of energy resources. Thus in the second phase of removing plan subsidy, the role of energy in production should be considered. In fact, the government must provide necessary background in order to convert the old technologies into modern and more efficient technologies, in addition to allocating the special energy subsides to production sector.