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 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.