The Impact of the Subsidy Reform Plan on Consumer Demand for Gasoline in Isfahan

Iran is not only a major energy leading oil producer, but also is a large consumer of energy. High population, land area and industrial and urban development are all important factors in the consumer market in the country, and it is natural that a vast country like Iran has the energy demand for a variety of purposes. This is the reason that the level of energy consumption in Iran is very high and for various, reasons should be concerned about the current situation. Before the targeted subsidy plan, Iran's approach in the energy subsidies was very unsuitable and harmful. It seems necessary to evaluate the effect of the plan on the consumer demand for energy across the country. In this study, we examine this relationship in Isfahan. This paper uses a model which introduced by Sitra and et al (2012). The demand elasticity is calculated with using the SUR method and AIDS. In this regard, we use data of Isfahan’s consumers for the period of 1384 to September 1393. The estimation results of gasoline demand equation show that the effect of commodity prices on demand is negative, which indicates the law of demand works here. The estimated coefficient of commodity price is negative and smaller than one that shows gasoline is an essential commodity. In accordance with the results, the coefficient of real value added is estimated positive, which indicate the gasoline is a normal good. The results also show that the dummy variable for the targeted subsidy plan has a negative and significant effect on the commodity demands which can indicate that the plan and prices lead to lower fuel demand in the city.