Document Type : ORIGINAL ARTICLE
Authors
1 PhD Student in Economics, Department of Economics, Faculty of Economics and Management, Urmia University, Iran,
2 Associate Professor of Department of Economics, urmia University
3 Associate Professor of Economics, Department of Economics, Faculty of Economics and Management, Urmia University, Iran
Abstract
This study investigates the effects of price adjustment of subsidized goods (bread and cereals, sugar and sweets, and energy) on the welfare of urban households in Iran during 2007–2024. Using the Linear Almost Ideal Demand System (LA-AIDS) and Seemingly Unrelated Regression Estimation (SUR), demand functions were estimated across expenditure deciles. Wald test results show that the homogeneity condition holds only for the bread equation, while the adding-up condition is confirmed for the system. Own-price elasticities are negative for all three groups, confirming the law of demand. Bread elasticity is inelastic across all deciles, ranging from -0.38 to -0.48. Energy elasticity ranges from -0.49 to -0.64, and sugar elasticity ranges from -0.10 to -0.14, both inelastic. Income elasticities indicate that bread (0.95-0.96) and energy (0.74-0.80) are necessities, while sugar (1.09-1.10) is relatively luxurious. Cross-price elasticity results show that bread has a weak substitution relationship with energy and a strong complementary relationship with sugar and sweets. Welfare indices (CV and EV) were calculated under 50% and 100% price increase scenarios. Results show that although absolute loss is higher for high-income households, the relative welfare burden is disproportionately imposed on low-income deciles (especially the first decile). Policy recommendations include targeted compensation for the first decile, gradual bread price reform, and support for vulnerable deciles.
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