Tyranny of numbers

A surprising result for inequality in 2007

Posted in Inequality by Djavad on June 5, 2009

Following the good suggestion by a keen reader, I went back to the data to see if the rise in inequality I reported earlier was due to the housing boom.  It turns out that taking out all housing expenses from expenditures does  not change the decile growth rates significantly.  So it seems that the housing boom did not cause expenditures at the higher end to be exaggerated relative to the poorer deciles.  In other words, the housing boom appears to have been inequality neutral.  While doing these calculations I came across a finding that, if it stands, is good news for Mr. Ahmadinejad.

In doing the recalculations, I noticed two things.  First, I used updated CPI and sampling weights, which caused me to revise the graph in my previous post.  The revision is slight but favors Mr. Ahmadinejad– there is a smaller increase in inequality during 2005-07 than I had calculated before.  Also revised are the decile growth rates under Mr. Rafsanjani, which is now lower and more flat.

More importantly, looking closer, I realized that the rising inequality during the Ahmadinejad years was entirely caused by deterioration during 2005-06.  The change during 2006-07 (the last year for which we have data is 2007)  is in the opposite direction and exactly as Mr. Ahmadinejad had promised!  The figure below shows average decile growth rates for the three-year period as well as for individual years.  Whereas Mr. Ahmadinejad’s first year saw inequality rise (the expenditures of the top decile grew by 1.5%, compared to minus 1.8% for the lowest decile), the following year the situation reversed and the growth rates for the lower deciles was twice that of the highest deciles.  What explains this divergent behavior between the two years I do not know.  I know it is not caused by the housing boom.


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8 Responses

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  1. masoud said, on June 28, 2009 at 11:16 pm

    Your graph seems a little vexing to me, I was wondering if you could give a little more detail about how it is calculated?

    The top 10% growth rate is listed as 2%, for 05-6, and 4% for 06-07, but the overall 05-07 growth rate is listed again as 2%. I would have thought it would have been something closer to 3%. Does each of the first two yearst represent a full Western calender year? Am I being naive? Or perhaps inflation/real-estate boom correction is being accounted for differently in the last data set?



  2. [...] neoliberal Khatami – while relative poverty has certainly increased. (It’s possible that a slight change in inequality in 2007 favours Ahmadinejad’s regime, but equally possible that the change is nothing to do [...]

  3. j.madib said, on June 15, 2009 at 2:41 am

    http://www.terrorfreetomorrow.org/upimagestft/TFT%20Iran%20Survey%20Report%200609.pdf, looking at the stat it is not suprising, except the western media just blow it for hidden agendaj

  4. Top Posts « WordPress.com said, on June 14, 2009 at 8:52 pm

    [...] A surprising result for inequality in 2007 Following the good suggestion by a keen reader, I went back to the data to see if the rise in inequality I reported [...] [...]

  5. امیررضا said, on June 8, 2009 at 6:28 am

    One point that may be worth discussing: the housing boom has to with the distribution of wealth, and not income, whereas, AFAIK, the gini coefficient is about the income distribution. That because ones residential properties are part of his/her wealth and not income.
    That’s why maybe the inequality in wealth is not well reflected in the gini coefficient alone.

    I’m not sure. Please correct me if I’m wrong.

    • dsalehi said, on June 8, 2009 at 8:42 am

      You are right about the difference between inequality of wealth and income. However, in this case, since we are measuring inequality using per capita expenditures, the wealth effects of a housing boom would be expected to show. Usually, households spend more and save less when the value of their house increases. This is the phenomenon that is responsible for the borrowing boom in the US of the recent years, which caused the economic collapse.

  6. Djavad said, on June 7, 2009 at 9:30 am

    Thank you, Keyvan, for your excellent point. I, too, have wondered about the significance of the “justice shares” but cannot find any reliable information on them. I know of specific cases where the shares are brining non-negligible cash to families, but it would be good to know how extensive the program is, to whom share are being distributed, and what are the rules –can they be sold? Perhaps someone can throw light on this issue right here.

  7. Keyvan said, on June 6, 2009 at 7:53 pm

    Definitely not the housing boom, which peaked in 2007/2008. This is not going to win me any fans among expats, but could it be the justice shares and all the accompanying new entitlement programs that Ahmadinejad implemented? I’ve seen almost no serious accounting for the extent and effect of these programs. Brazil and Mexico do cash handouts now, and they’ve seen some good poverty and inequality reduction over the last 5 years or so.

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