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A Consideration Relating to Subsidy Policy in Iran

Increase in prices is the result of policy followed by developing countries to overcome their backwardness. To reduce the pressure arising from such inflationary tendencies especially on lower income group, the government adopted various policy measures. One of which is subsidy payment despite its destructive impact. Infact energy subsidy has become a relief measure to reduce the negative Impact of government policies. On the other hard the experience of other countries show clearly that high rise in prices has not head to subsequent rise in output. This indicate that price reform policy alone is inadequate whatever might he the reason for subsidy payment, it is now realized that at macro level, it affect both real and monetary sectors. Depending on how subsidies are financed its inflationary and monetary impact varies. There is a view maintaining that the resources used in subsidy payment could be used in income earning activities, this view though theoretically sound its efficiency in output is trivial indeed and inflationary tendencies resulting from reducing subsidies change the direction of result. Efficiency of subsidy payment depends upon the mechanism followed and the tools used. Designing appropriate subsidy programmed require considering various factors such as the method of subsidy payment and implementation, Political support, the extent to which non- inclusine families are affected, its cost and effectiveness in the country. In this paper we shall look at different aspect of subsidy policy analyzing its various impacts and proposing the conditions needed for its improvements and effectiveness. I However, its impact on real sector (Output and employment) depends upon complementary policy followed simultaneously to meet social demand. Because of high exchange earnings, its impact in oil producing countries are more Serious, terse and rapid.