A Study of the Effects of Eliminating Bread Subsidies on the Demand of Low-income and High-income Segments in Iranian Urban Areas

Abstract

The main objective of this study is to answer the question whether the elimination of bread subsidies has had any effect on high- and low-income groups in same manner? The study was done using the annual data from 1997 to 2014 for low- and high-income groups by estimating the AIDS demand function and the seemingly unrelated (SUR) equation system. The results show that bread is a low-elasticity and necessary commodity for both low-income and high-income groups, such that, by a 100-percent increase in bread price, low-income and high-income groups lower their demands by 48 percent and 25 percent respectively. The study of cross-elasticity for low-income groups shows grains as an alternative for bread, flour and noodles as almost independent food stuffs, and take-out foods as complementary to bread. Also, the cross elasticity of high-income groups shows that grains and take-out foods are alternatives to bread, while flour and noodles are almost independent of bread. It is understood from the other results of the research that low-income group are more sensitive to increased price of grains, flour and noodles.