Proxy Means Tests for Targeting Subsidies Scheme in Iran

Abstract

In this paper I develop a Proxy Means Tests (PMT) model and examine several targeting lines based on 2008 household survey data to identify beneficiaries for a targeting subsidy scheme in Iran. Based on the findings of this study, setting a cut-off percentile of 40% is expected to provide compensation for almost 70 percent of the poorest households. This will result in the highest accuracy mainly in rural areas where poverty is much more severe than elsewhere in the country. Substituting the current scheme which covers almost all households in Iran with a targeting scheme based on the results of the PMT model will allow for either transferring larger amount of money to the extreme poor at the current budget, or reducing the government expenditure in the form of repayment after removing subsidies on fuel and energy.