Energy Price Reform: A General Equilibrium Model

Please enable javascript in your browser.

Nafissi, Mohammad Reza | 2020

1277 Viewed

Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 53455 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Madanizadeh, Ali
Abstract:
Using a micro-based general equilibrium model with four sectors, I introduce a context to study the macroeconomic effects of energy subsidies. I calibrate the model using Iranian energy data, estimating elasticities of substitution and energy shares. Using this calibration, I compare the steady-state results of two compensation plans for energy price reform, tax cuts and cash transfer, explaining the active mechanisms in each scenario and investigating their impact on household welfare and production levels. I calculate that the steady-state energy price in Iran is 40% of regional prices, and we simulate the reform in which prices are increased from this price to regional prices. I conclude that in both scenarios, the reform has positive welfare consequences. Also, I show that assuming an elastic labor supply, the reform concomitant with tax cut compensation leads to 6% and 7% growth in steady-state GDP and consumption, respectively. Whereas in the cash transfer scenario with the same assumptions, we observe a 4% drop in GDP and consumption after the reform
Keywords:
Energy Subside ; Subsidy ; Iran Economy ; Macroeconomic Model ; Energy Economy Model ; Energy Price ; General Equilibruim Model