The Effects of Cash Transfers of Electrical Energy Subsidies on the Price Index Using the Computable General Equilibrium (CGE) Model

In this study, we survey the effects of cash payments of electrical energy subsidies on prices index based on a computable general equilibrium model for Iran using a social accounting matrix (SAM) in 2006. We applied three scenarios on cash payments and their financing through (a) surplus revenues of government, (b) sales tax on electricity and (c) income tax on household revenue, and combined these scenarios with the scenario of increase in prices. The results show that in cases (a) and (c); the general prices level and price indices have direct relationship with cash subsidies and electricity prices. However, in case (b), financing through sales tax, due to changes in the composition of aggregate demand, results in decreasing general price level.