Study of Economic and Environmental Consequences of Eliminating Chemical and Pesticides Subsidy Using General Equilibrium Analysis

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Abstract

Reducing chemical and pesticides subsidy is of the expected policy reforms in agriculture sector. So, the objective of this study is to investigate economic and environmental impacts of this policy. To get the objective a computable general equilibrium framework was used. The model parameters are obtained using calibration which is based on Social Accounting Matrix (SAM) table of Iran for 1999. Iranian economy contains 22 sectors covering agriculture, agriculture industries, manufacturing and mining, energy and services sectors. The results shows that chemical and pesticides subsidy elimination makes GDP fall relative to the initial equilibrium by 1.5%. This policy results in significant output reduction in agriculture and agricultural industries while non-agricultural sectors output tend to expand slightly. It was also found chemical and pesticides subsidy elimination decreases pollutants emission.

JEL Classification: Q18, H20, C68

Keywords: Subsidy, Pesticide, Chemical Fertilizer, General Equilibrium

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