Khosro Piraee, Behrouz Seif,
Volume 18, Issue 9 (3-2011)
Abstract
Social welfare especially the social welfare of low income groups has always been important for governments, hence, subsidies are paid on different goods to decrease the prices and as a result, increase purchasing power. However, because of not being targeted, the relatively rich benefit from subsidies more than the poor. Therefore it seems to be necessary to design self-targeted safety-net programs. This research aims at investigating the welfare consequences of self-targeted subsidies and to answer this question: what is the impact of transferring one unit of subsidies paid on subsidized goods mostly used by the rich to non-subsidized goods mostly used by the poor on welfare-improving? For this purpose, we calculated the change in social welfare caused by self-targeted subsidies. The results show that self-targeted subsidies increase social welfare. The extent of this increase is negatively related to inequality aversion parameter, while positively related to the share of non-subsidized goods in low income deciles budget.
