From Price Subsidies to Basic Income: The Iran Model and Its Lessons

Abstract

In December 2010, Iran launched a five-year program to reform its system of price subsidies. In the first of several stages, subsidies were partially cut by raising prices of fuel products and some other goods and services, in most cases, several-fold. The net proceeds were partly earmarked to finance a compensatory cash transfer program that pays every Iranian residing in the country the equivalent of $40–45 a month, unconditionally. The later stages of the reform will see further rises in prices and transfer payments in tandem until subsidies are entirely eliminated. This, in a nutshell, is the “Iran model” of basic income. It differs in some respects from the common conceptions of basic income in the literature and may therefore be more accurately termed a “de facto basic income.” The story of how this de facto basic income came into being and some of its early results are recounted elsewhere.¹ This chapter focuses on the model itself, elaborating on its key features, its genesis, the challenges it faces, and some of its lessons.