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Abstract

There is no generally conventional definition of subsidy. For the purposes of this paper, a subsidy is a transfer of economic resources by the government to the buyer or seller of a good or service that has the effect of reducing the price paid, increasing the price received, or reducing the cost of production of the good or service. Energy Subsidy is paid by government so that all classes of society can gain a minimum level of welfare. So, the purpose of energy subsidy is to help deprived groups and acquire social justice. But if Energy subsidy is paid indirectly (providing energy at a price lower than marginal cost), subsidy works against the mentioned purpose. In this way, high-income groups have a much higher share of energy consumption. As a result, for having a goal-oriented energy subsidy, direct energy subsidy method (pay the sum of subsidy directly to low-income groups) is the main proposed in this study. Changes in energy prices have great impacts on economic, social and political sectors of the country. The effects of above method on the four variables have been studied here: inflation rate, economic pressure on low-income groups (which is showed as the ratio of inflation rate to income increase rate of low class), energy consumption per capita and energy smuggling. The structure of direct energy subsidy has been modeled with system dynamics methodology first, four scenarios have been proposed and finally the affects in fluctuation of energy price on these variables have been analyzed in each of the scenarios.