Tyranny of numbers

Greater equity through redistribution: what can the targeting of subsidies do?

Posted in Inequality, Poverty by Djavad on March 31, 2010

The Fifth Five-Year Plan of the Islamic Republic of Iran (1389-93, 2010–14), still under review by the parliament, has a clear goal for reducing inequality in five years– a Gini index of 0.35 for income.  This is a substantial reduction from the high level of inequality that has plagued Iran in recent years.  The law for targeting of subsidies, which was passed last January but is still in limbo, is the main instrument for reaching this target.  It aims to raise prices of energy products to world prices during the plan period and redistribute half of the proceeds to lower income households.  How radical would the redistribution have to be for the government to reach its inequality goal? (more…)

A good time for goodbye to subsidies

Posted in Inequality, Macroeconomy by Djavad on January 16, 2010

Everybody acknowledges that Iran’s $50 billion subsidy program cannot continue forever but many don’t think that the time to undo past excesses is now.  Iran’s economy is in deep recession, external threats of sanctions and military strikes are on the rise, and internally the nation is in the grips of an unprecedented political crisis.  Yet this week the bill to reform the vast subsidy program became law and the Ahmadinejad government is getting ready to take the plunge.  (more…)

Off target in subsidy reform

Posted in General, Inequality, Macroeconomy, Poverty by Djavad on December 6, 2009

This week the bill to target subsidies, intended mainly to reduce subsidies for energy products, left Iran’s parliament (majlis) for the Guardian Council.  The Council has the last word on matters legislative, and may well decide to kill the bill because the government does not want to implement it with the modifications added by the parliament.  President Ahmadinejad, known more for its populist inclinations than pro-market sentiments, has taken an unlikely position to reform Iran’s $60 billion subsidy program (more than 15% of national income) on energy, food, and a few other items.  But the dispute over who should control the revenues saved from the bill’s implementation (the subsidy fund, for short) threatens to derail this historic effort to wean Iranians off cheap energy.  If the bill survives the Guardian Council, it is sure to die in implementation.  Raising prices for basic commodities in the highly charged post-election political atmosphere of Iran is difficult enough, an unwillingness government is not likely to forge ahead with doing so.  (more…)

Reform of energy subsidies

Posted in General, Inequality, Poverty by Djavad on October 22, 2009

At long last and after decades of talking about doing something about the subsidies, there is a bill before Iran’s majlis to target (but not remove) subsidies.  I could not locate the bill itself but my impression is that it only addresses energy subsidies and not other subsidies such as food and medicine.  So far only 5 of the bill’s 14 articles have been passed, but the government already has the mandate to raise prices on energy products over the next five years.  The bill has been criticized from both the Right and the Left, which leads me to think it must be a move in the right direction. (more…)

The Ahmadinejad-Karrubi debate: and the loser is …

Posted in General, Inequality, Macroeconomy by Djavad on June 8, 2009

Statistics.  Between the two of them it was hard to tell who won that debate on June 6, 2009.  But statistics was a certain loser.  Mr. Ahmadinejad provided a series of charts to defend his economic record (which, by the way, was not under attack that night) but Mr. Karrubi dismissed them by simply saying that his numbers were wrong.  Most of the numbers I was able to see on the television screen seemed right to me.  But, unfortunately, numbers were not the point of the debate. (more…)

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. (more…)

Rising inequality in Iran: who is to blame?

Posted in Inequality, Poverty by Djavad on May 25, 2009

There have been reports of rising inequality under the Ahmadinejad’s administration (for example, in the Persian sites of Rastak and Aftab), which, unlike their claims for rising poverty, are grounded in facts.   Survey data show convincingly that inequality has increased in the last few years, but what has caused it is uncertain and subject to dispute.  The popular explanation (popular among reformists) for the rise in inequality in recent years is, of course, President Ahmadinejad policies.  But there is a deeper, somewhat related, explanation which should not be overlooked– the oil boom itself.  Deciding which explanation is more important goes to the heart of political economy questions that have occupied many minds in Iran in recent years. (more…)

Stagnant rural incomes

Posted in Inequality, Macroeconomy, Poverty by Djavad on May 22, 2009

The gap between rural and urban incomes has been widening because the rural areas appear to have missed the recent boom or President Ahmadinejad’s redistribution. According to survey data, in 2007, the gap between rural and urban per capita household expenditures reached its highest level, nearly 50 percent, up from 45 percent in 2004.  During these three years, when urban families enjoyed (a modest) 3.5 percent annual growth, rural expenditures grew by zero percent!   Why the rural economy has fallen behind or out of national favor is anybody’s guess, but here are a few leading explanations. (more…)