Wednesday, December 2, 2009

Ahmadinejad, the libertarian

The NYT reports:

If it goes awry, the plan to phase out Iran’s system of state subsidies, which has existed for decades, could profoundly destabilize the government of Mahmoud Ahmadinejad, who has aggressively championed change. But it could also help wean Iran from its dependence on foreign gasoline and insulate the economy from new sanctions — which are a strong possibility if Iran continues to defy Western pressure over its nuclear program.

The Times claims that the subsidies are regressive, because the rich have more money and buy more goods. I have to admit that I don't remember ever having heard of subsidies being described as progressive or regressive, but it seems to me that this is actually a flat subsidy, in that it rises and falls at about the same rate as one's income.

But anyway, I digress. Here's the most interesting part of the article:

Oddly, one thing that might make subsidies reform easier is more sanctions, the tool most widely discussed by Western leaders as a final option to put pressure on Iran if current nuclear negotiations fail. Economic sanctions or a gasoline embargo (assuming one could even be organized) would force down consumption and help the Iranian government’s finances, because there would be no more need to pay for gasoline imports, Mr. Parsi said. That could disguise the pain of subsidies reform, allowing the government to blame the West for any ensuing inflation.

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