model specifically designed for the distributional analysis of subsidies and the simulation of subsidy reforms. The model is called “SUBSIM” (Araar and Verme 2015).

The analysis consists of the following steps. First, we update household expenditure from HEIS 2018/2019 by applying projected nominal GDP per capita growth and the poverty line by projected increases in the Consumer Price Index in order to obtain expenditures and the poverty line in 2019/20 prices, from which can be obtained a forecasted poverty rate for this period.<sup>2</sup> Second, we analyze the distribution of gasoline expenditures and quantities consumed across the household consumption distribution in the Islamic Republic of Iran. Third, we simulate direct and indirect impacts from the increase of gasoline prices on population well-being, poverty and inequality using the publicly available SUBSIM Stata package (Araar and Verme 2012). Finally, we assess the impact on government expenditures and revenues after the reform, including the cost of any mitigation measures.

2. Preparing the microdata and initial parameters 2.1 Forecasting household budget expenditure and initial parameters The Household Expenditure and Income Survey (HEIS) conducted by the Statistical Center of Iran in March 2018-March 2019 is used to analyze the potential impact on poverty and inequality from higher gasoline prices and reintroducing a rationing system. In order to have the most up to date poverty and expenditure numbers, we forecasted poverty for the period March 2019-March 2020. This is done by adjusting household expenditures by the estimated nominal gross domestic product (GDP) per capita growth rate and the poverty line by the estimated increase in the Consumer Price Index (CPI). Inflation is assumed to be 35 percent; GDP per capita nominal growth is predicted to be around 32 percent and population growth around 1 percent (World Bank staff estimates before the breakout of COVID-19). Resulting daily expenditure and population numbers are shown in Table 1.

Table 1. Population and daily expenditures in IRR in 2019/20, forecasted numbers

||**Population,**<br>**million**|**Number of**<br>**households,**<br>**million**|**Household**<br>**size**|**Total**<br>**expenditures,**<br>**billion**|**Total expenditures per**<br>**capita, thousand**|**Total expenditures**<br>**per household,**<br>**thousand**|
|---|---|---|---|---|---|---|
|poorest|8.7|1.9|4.5|691|79,832|359,075|
|2|8.7|2.1|4.1|1,064|122,793|504,247|
|3|8.7|2.2|3.9|1,330|153,666|594,420|
|4|8.7|2.3|3.7|1,567|181,104|677,333|
|5|8.7|2.4|3.6|1,847|213,291|764,559|
|6|8.7|2.5|3.5|2,175|251,124|868,359|
|7|8.7|2.6|3.3|2,596|300,020|990,845|
|8|8.7|2.8|3.1|3,196|369,119|1,137,665|
|9|8.7|3.0|2.9|4,236|489,272|1,430,198|
|richest|8.7|3.5|2.5|8,149|941,671|2,318,160|
|Total|86.6|25.4|3|26,852|310,157|1,056,611|

Source: Forecasted numbers based on HEIS 2018/19. Note: GDP and CPI numbers are from Statistical Center of Iran.

2 This is a very crude prediction of poverty due to the assumption of a one-to-one relationship between GDP and consumption, but our main goal is to have consumption in the current prices and baseline poverty level to check the impact from the reform. It is the change over the forecast baseline which represents the magnitude of the impact of the reform; the precise levels matter less for our purposes.

3