Estimating the Effect of Reduction in Agricultural Subsidies on Production and Employment

Abstract

This paper investigates the effect of reduction in agricultural subsidies in Iran. To this end, the social accounting matrix (SAM) as an analytical model is developed with dimensions of 78 × 78 for the year 2006. Since the amount of subsidies paid to the agriculture sector, based on Total Aggregate Measurement of Support (TAMS), is higher than amount set by the World Trade Organization, hence, in the case of applying for membership of Iran in this organization, Iran should reduce subsidies during a 10-year period, annually by reduction as much as 13600 billion Rials. This paper studies the reduction in agricultural subsidies by 13600 billion Rials. The findings indicate the reduction in gross domestic product (GDP) by more than 57000 billion Rials. One main effect of reduction in agricultural subsidies relates to reduction in output and employment, in such a way this shock results in reducing number of agricultural employees by 86000 people.

Keywords

• social accounting matrix
• unemployment
• subsidy
• gross domestic product
• agriculture