Evaluation the Effect of Food Subsidy Reduction on Iranian Household Calorie Intake: VAR Application

In each year, Iranian government provides for food subsidy in its budget. Recently, the effect of food subsidy to the households has been controversial. In this Article we use vector autoregressive method for investigating the effect of food subsidy reduction on Iranian households' calorie intake. The results show that one unit standard error reduction in food subsidy without income compensation has a considerable negative effect on calorie intake in short-run and that it takes around five years for households to adjust themselves to the new condition. But, if the negative shock of food subsidy reduction occurs with the same amount of positive income, then the effect of income increasing not only removes the negative effects of subsidy reduction, but also will have positive effect on calorie intake in short-run and long-run. Therefore, it seems that focusing on food subsidy reduction is not the best solution