Impact of Subsidies Targeting on Structural Stability of Model Coefficient of Consumer Demand

Subject Areas : Applied Economics

همایون  رنجبر ¹ (مسئول مکاتبات)
مهری  کبیریان ² (ندارد)

Received: 2010-05-22 Accepted : 2010-11-16 Published : 2011-03-21

Keywords: Subsidy, Almost Ideal Demand System, Structural Break of Coefficien,

Abstract :

Subsidies targeting is one the most important and effective step in government action in the direction of economic reform in the country. With implementation of this plan the prices will be actualized leading to the possibility of change in the relative consumer welfare and the composition of consumers’ expenses and their long run demand behavior.      Accordingly, the goal of this research is to investigate the above mentioned effects in terms of country demand functions system via Almost Ideal Demand System (AIDS) in form of two groups of import goods and domestic sales in terms of durable and nondurable goods during (1978-2007). For this purpose, after estimating the model, the hypothesis of structural stability of model coefficient will be test in the forecast period of (2010-2015) via simulation of model variables according to the definition of different scenarios of inflation effects resulting from subsidies targeting and the growth rate of gross national product, once on the supposition of government achievement to the goals of the fifth program of development (growth rate of 8%) and the other on the basis of growth rate of 3%.      The results showed that the implementation of subsidies targeting policy at the annual gross national product growth rate of 3% and 8% preserves structural stability of demand model coefficients at each inflationary level from 10% to 70%. Accordingly, with emphasis on the continuation of subsidies targeting plan, it is purposed to reduce and control inflation and also to support domestic products.