Short‑ and long‑run macroeconomic impacts of the 2010 Iranian energy subsidy reform

The subsidy reform, which consists of a simultaneous energy subsidy cut and a cash transfer to households, is not fiscally motivated but instead aims to reduce energy consumption. Using timeseries to analyse the dynamics of the macro variables in response to the subsidy reform elements (energy price increase, and cash transfer), this study reveals that the subsidy reform has a negative effect on the economy in the short- and midterm, and the cash transfer to households does not fully compensate for this adverse effect.

These results are robust and consistent across specifications. The main channel that transmits the effect of energy price to GDP is value-added of industry and service sectors. The long-run analysis rejects the existence of a long-run relationship between the energy subsidy reform and GDP.