Like the other governments in developing countries, the Iranian government supplies subsidized food-mainly bread-for the consumers using cheap-food policy which leads to an income transfer from producers/taxpayers to consumers. Income transfer through commodity markets has not only direct expenditures but indirect costs called excess burden of transfer. Considering this excess burden, the welfare effects and the efficiency of Iranian cheap-food policy in 1376 was studied. The results show that this policy has made a 4317 billion Rials increase in consumers’ welfare but a 2.9 fold decrease in producers/taxpayers’ welfare. Deadweight losses from the policy has been very tremendous (47.7 percent of national tax revenues in 1376), making its efficiency in income transfer very small (13 to 58 percent).
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