Money illusion
Recently an article posted on the government’s website claimed that household resources have doubled under the Ahmadinejad administration. Quoting from the Central Bank’s urban expenditure survey, it said that household expenditures rose from 56.6 million rials per year in 1383 (2004, the last year of Khatami’s presidency) to 113. 2 million in 1387 (2008). The numbers are accurately reported, but I can’t imagine that anyone in Iran would take the claim of doubling of family incomes seriously. One thing you cannot accuse Iranians of is money illusion. If there is any illusion it is in the opposite direction–that inflation reduces real incomes no matter how fast incomes increase in nominal terms. (more…)
Greater equity through redistribution: what can the targeting of subsidies do?
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…)
Estimating the value of Iran’s subsidies
Estimates of Iran’s subsidies vary widely. The figure that I see most often quoted is $100 billion per year, which is a huge sum considering the fact that Iran’s GDP is less than $400 billion. I have used a figure of $50 billion in a previous post, which maybe an underestimate. My back-of-the-envelope calculations below produce a figure in between –$70 billion. (more…)
Will Iran’s poor lose from subsidy reform?
Barely three months have passed since the controversial bill that authorizes the government to target its massive subsidy program became law, and it is already stalling. The government has asked the parliament to lift the $20 billion ceiling on spending from the revenues that it hopes to raise from selling energy at higher prices and lowering the subsidy for a few other items. In the meantime, the stalling has allowed the opponents of the targeting bill to revive their calls for scrapping the bill and renew their warnings that the nation will pay a heavy price for removing these subsides (see, for example, here and here, both in Persian). Most likely this will not be the last setback the bill will suffer in its precarious journey toward implementation. But at least the journey to rationalize Iran’s energy prices has started. (more…)
A good time for goodbye to subsidies
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
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
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…)
Seoul impressions
This is my first, and long overdue, visit to Korea. I have wanted to see Korea up close for a long time because this country occupies a special place in my education as a development economist. When I was in graduate school in the 1970s, Korea was a poor developing country, and behind Iran in income per capita. Now its income per capita is more than twice that of Iran and in many respects a developed country–a world apart from where Iran is today. (more…)
The Revolution and the Rural Poor
A short article of mine with this tile just came out in the latest issue of the Radical History Review (restricted access). This is an unlikely outlet for me, but then to say anything positive about Iran these days sounds radical. The problem that critics ignore is that, although policies matter greatly, all improvements in living standards, health and education are in the end the achievements of individuals, families, and communities. A rural girls who studies at night derives hope somewhere from a society that says to her you belong and if you work hard we will treat you fairly, but without parents who encourage her, she will probably not go to school. (more…)
Tyranny of numbers 
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