Tyranny of numbers

Revelations of high CEO pay in Iran: what do they imply about wage inequality?

Posted in Inequality by Djavad on June 23, 2016

The recent revelations of “astronomical” salaries of CEOs and top government officials in Iran, up to 2.4 billion rials per month ($68,000 at the free market exchange rate or $200,000 PPP) have embarrassed and put pressure on the Rouhani government.  But how high are these salaries in light of the wage distribution in Iran and CEO pay elsewhere? (more…)

Long term trends in poverty and inequality in Iran

Posted in Inequality, Poverty by Djavad on March 29, 2016

In my last post I argued that, after two years of improvement, poverty and inequality were on the rise in 2014/15.  In this post I extend the calculation of poverty and inequality measures to the entire period for which survey data are available, 1984/85-2014/15. This  post also updates the results in my 2009 paper published in the Journal of Economic Inequality, which covered the period from before the revolution to 2005.   (more…)

Elections in times of economic crisis

Posted in General, Inequality, Poverty by Djavad on March 13, 2016

In a post that I published earlier this week on the Brookings blog, Future Development, I argued that because Iran’s February 26 parliamentary elections took place at an economically inopportune time the success of the moderate candidates is all the more significant.  In my last post here, written a couple days before the election, I had presented some evidence for the poor state of the economy — loss of industrial jobs and falling living standards since Rouhani’s election in June 2013.  In this post I expand the discussion of living standards, poverty, and inequality in recent years. (more…)

Will Rouhani complete the reform of subsidies?

Posted in General, Inequality, Poverty, Subsidy reform by Djavad on September 9, 2015

In principle, the answer to this question should be yes.  Rouhani’s administration professes to be pro-market and is eager to shift resources from wasteful consumption to economic growth.  What better way to remove energy subsidies and use the proceeds to fund the cash-starved development budget? (more…)

Inequality of income in Iran after subsidy reform: the view from the Palma ratio

Posted in General, Inequality by Djavad on November 29, 2014

A while back a friend asked me if the Palma ratio — the ratio of the incomes of the top 10% to the bottom 40% — is a good indicator of inequality in Iran.  I waited until I had the data for 1392 (2013/2014) to answer his question.  In the meantime, I came across a banner headline in the economics newspaper, Taadol, which read something to this effect: “Subsidy reform deepens inequality.”  The claim itself was nothing new, but the reported Gini indices were: I had not seen anyone report Gini coefficients as high as 0.53 for the post-revolution Iran, and it turns out that they do not exist.

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Reading Piketty in Tehran

Posted in Employment, General, Inequality, Macroeconomy by Djavad on July 11, 2014

If you are someone who pays attention to economic news and have not been hiding in a cave for the past few months, you must have heard of the famous book by the French economist Thomas Piketty, Capital in the Twenty-First Century.  Since its translation was published in English earlier this year, it has sold more than half a million copies, which is astonishing for a book with many tables and charts (a publisher once told me that each chart cuts sales by 10%  — there goes that bit of wisdom).

Last month people were also talking about Piletty’s book in Tehran, and this month’s Mehrnameh, published this week, has a section discussing it, including a short interview by yours truly.   I must confess, as I did to the interviewer, that like most people who have bought the book, so far, I have only read the introduction (I have read, however, many of the book reviews — more pages of reviewes than of the book itself! Read an excellent early review by Branko Milanovic here). (more…)

Inflation and energy price reform in Iran

Posted in General, Inequality, Inflation, Sanctions, Subsidy reform by Djavad on February 19, 2014

The dominant view of the high inflation of the last three years blames it on the subsidy reform. (The latest high profile assertion to this effect came from a piece by Hashem Pesaran and Hadi Salehi Esfahani published by the Fars News Agency, to which Mohammad Ali Farzin, the former head of the subsidy reform program,  responded by claming that only 10% of the inflation was due to the subsidy reform).  Were it not for the fact that blaming energy prices for the destructive inflation of the last three years casts a long shadow over future policy on energy prices, the mere fact that it is wrong would not prompt me to bore the readers of this blog with yet another post on inflation. (more…)

Transfers in kind: learning the old lessons, again

Posted in General, Inequality, Poverty, Subsidy reform by Djavad on February 14, 2014

President Rowhani has received well-deserved high marks in foreign policy for his management of the tough negotiations with P5+1 in Geneva, but his first attempt at dealing with Iran’s broken social protection system does not deserve a passing grade.  I explain this in my latest post at Iran Matters.    The food distribution plan that, according to an editorial in the conservative Keyhan newspaper, “could have been a gesture that the government cares about the poor …  but instead it turned into insult and humiliation.”  

The government seems to have made a hasty decision that transfers in kind are superior to cash, despite evidence to the contrary, as I argued in a recent post here.  Tadbir, which is the motto of Rouhani’s government and translates into prudence and experience in Persian, should include economics research and the experience of other countries.  Are there channels for this type of information to find its way into Iran’s policy circles?   

Saving the subsidy reform program

Posted in Inequality, Subsidy reform by Djavad on October 6, 2013

Ever since it took over the reigns of government in August, President Rouhani’s administration has been grappling with the challenge of closing the huge gap in the government budget that it has inherited from its predecessor, reportedly at about 800 trillion rials (about $33 billion) or more than one third of planned expenditures.  This is no small challenge given the fact that half of the year is over and much of the expenditures have already taken place or been committed.  So, to reduce the deficit the government has little choice but to raise revenue. Luckily, inflation started to slow down just before Rouhani took over and has stayed below the 20% annual rate for the last three months, down from twice that rate in previous months.  The bad news is that the most praiseworthy of the Ahmadinejad programs, the subsidy reform, is in deep deficit.  The program has other problems besides its revenue gap, but it is on life support and the chord will be cut unless this problem is taken care of.  Good solutions are there, all involving further adjustment in prices, but to implement them the government needs to show courage.  The idea that has been floating for some time to cut the payments to richer consumers is appealing but not practical.
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Debating the economy in Iran’s presidential election

Posted in General, Inequality, Poverty by Djavad on June 9, 2013

One of the weakest aspects of Iran’s presidential election is fact checking for economic claims made by the candidates.  For example, the other day candidate Gharazi seemed to imply that as Minister of Oil for the Rafsanjani government in the 1990s he was responsible for keeping the world price of oil high.  He claimed that the world oil price dropped by about 50% when president Khatami replaced him by a reformer.  It is a tall claim that a minister responsible for less than 5% of the world oil supply could have such a large influence on the global market.

Mr. Rezai made a similar exaggeration when he said the rial has lost two-thirds of its value since last year.   True, in the free market for foreign exchange the rial fell by two-thirds last year, but prices have not tripled, as his remark implied.  This is because imported goods account for only a proportion of consumer goods, and not all imports are bought with this rate.

But perhaps the prize for exaggeration goes to Mr.  Aref, the reformist candidate, for claiming that 44% of Iranians are poor. If you assume that the 44% poverty rate also held for 2011, the last year for which Iran’s Statistical Center has released the raw data, it is easy to deduce the level of per capita expenditures (pce) that he has in mind as the poverty line.  It is a whopping 61,500 rials per day (roughly $12 using the World Bank PPP rate of 5006 rials per USD for 2011).  Unfortunately for Mr. Aref, the same poverty line implies a higher poverty rate for 2005 (47%), the last year of the reformist government in which he served as vice president.

Of course, these outcomes are not entirely the result of government policies, and Iran’s economy faces different challenges in 2011 than it did  in 2005.  But such cavalier use of data by politicians is not becoming for a country that claims to have reached a high level of scientific maturity and which wants to take its electoral process seriously.

The graph of the cumulative distribution functions of the pce for 2005 and 2011 also show that if we pick a lower poverty line, one more in line with international standards, of about $4, or 22,000 rials, we we notice a larger drop in poverty, from 7.1% to 4.3%.  The cdf’s also show a decline in inequality.  This is most likely the result of the cash transfer program administered under the Ahmadinejad government.  Whether or not this was the best way to help the poor is another matter.  I have been critical of his liberal import policy that hurt the Iranian economy during these very years, but that criticism is based on the poor losing jobs, not cash.  I happen to believe that giving the poor work is much superior to giving them cash, but then that is a debate for another time.

lpce2005_2011