Abstract
Gasoline price reform in Iran, due to its economic, political, and social dimensions, has always been one of the most challenging economic policies. The aim of this study is to identify the best scenario for gasoline price reform to minimize the negative effects on gross domestic product (GDP), investment, and employment in Iran. For this purpose, 18 different scenarios were simulated in three dimensions: the type of subsidy elimination (over three-, five-, and ten-year periods), the type of support compensation (cash or quota), and the level of support coverage (all deciles, low- and middle-income deciles, and only low-income deciles) using the Recursive Dynamic Computable General Equilibrium (RDCGE) model and data from the 2016 Social Accounting Matrix of the Central Bank of Iran. The results showed that the optimal scenario is the gradual elimination of gasoline subsidies over a ten-year period (bringing the price from $0.05 to $1 per liter), cash support compensation (equivalent to a monthly quota of 60 liters of gasoline), and support coverage for low- and middle-income deciles. In this scenario, the gasoline price increases by 34.93 percent annually, and not only do production, investment, and employment not decrease, but they increase by 2.18, 1.02, and 1.24 percent, respectively. Sensitivity analysis regarding key model parameters confirmed the robustness of the results. The findings indicate that the speed of subsidy elimination alone is not sufficient; rather, the method of support compensation and precise targeting of deciles play a pivotal role in the policy's success.