The Iran–Iraq War (1980-88), direct payments to individuals in the form of cash subsidies and sanctions have affected the dynamics of wealth inequality in Iran over the past four decades.
Using the Statistical Center of Iran data on the Gini index, the Persian-language daily Iran has categorized the Iranian years between March 1985 and March 2020 into five periods and surveyed the impacts of political and economic conditions on the Gini index.
The Gini index, or Gini coefficient, was devised by an Italian statistician named Corrado Gini in 1912. By far, it has been the most popular measure of socioeconomic inequality, especially in terms of income and wealth distribution.
The Gini index ranks income inequality on a scale of zero—no inequality—to one, the maximum level of inequality. In other words, the closer the number is to one, the more wealth is concentrated in the hands of fewer people, the bigger the income disparity. Because of the way the scale is constructed, a modest-sounding difference in the Gini ratio implies a big difference in inequality.
Period of Stability
From the Iranian year ending March 1985 to March 1989, the country was embroiled in the Iraq-imposed war.
The government at the time launched a coupon system to ensure that everyone had equal access to essential food items. The Gini index did not register a significant change during the period and generally remained on a downtrend, as it decreased from 0.4291 in the year ending March 1985 to 0.4200 in the year ending March 1989.
In addition, the spending gap between individuals in the top 10% of income earners to those in the bottom 10% income earners decreased from 16.59% to 15.26% during the period.
Growing Postwar Inequality
With the end of war came the growing income inequality. Individuals who had lost their source of income during the 1980-88 war reclaimed their livelihoods and the country’s resources were allocated to the reconstruction of infrastructures.
The Gini coefficient increased from 0.4249 in the Iranian year ending March 1990 to 0.4294 in the year leading to March 1997. The spending gap between individuals in the top 10% of income earners to those in the bottom 10% income earners increased from 16.24% in the year ending March 1990 to 17.20% in the year ending March 1997.
Reemergence of Stability
Between March 1998 and March 2005, Iranians saw the return of stable inequality indexes.
Iran’s economy posted a significant growth during the period. Per capita gross domestic product also registered high rates. The Gini index settled at 0.4240 in the year ending March 2005 from 0.4230 in the year ending March 1998.
The spending gap between individuals in the top 10% of income earners to those in the bottom 10% income earners decreased from 16.80% to 16.21% during the period, which is indicative of a narrowing wealth inequality.
Breaking Below 0.40
The Gini index fell below 0.40 during March 2006-13, chiefly because of the implementation of targeted subsidies policy that increased the income of all deciles equally.
The Targeted Subsidies Law of 2010, which authorized the reduction of food and energy subsidies, which was replaced with the payment of 455,000 rials to each and every Iranian on a monthly basis. The plan has been retained so far and more than 95% of Iranians currently receive the monthly cash subsidy. The Gini index slid from 0.4248 in the year ending March 2006 to 0.3659 in the year ending March 2013. The spending gap between individuals in the top 10% of income earners to those in the bottom 10% income earners decreased from 16.46% to 10.79% during the period.
Fluctuations
From March 2014 to March 2020, income redistribution indexes witnessed fluctuations. The Gini index hit a 36-year low in the year ending March 2014 and settled at 0.3650 in that year.
However, it began a rising trend from March 2014 to March 2019 but returned to a declining trend in the year ending March 2020. The index stood at 0.3788 in the year ending March 2015, 0.4093 in the year ending March 2019 and 0.3992 in the year ending March 2020.
On the other hand, the spending gap between individuals in the top 10% of income earners to those in the bottom 10% income earners increased from 10.68% in the year ending March 2014 to 14.45% in the year ending March 2019, but fell to 13.69% in the year ending March 2020.
Government’s cash and non-cash subsidies to low-income deciles have been the main reason behind the improvement of wealth redistribution during last year.
Reports show the government’s annual subsidies to the top low-income deciles in the year ending March 2020 increased 2.8-fold in urban areas and 3.5-fold in rural areas compared with the year ending March 2017, which has led to a drop in the country’s Gini index below 0.40.
Share of Sanctions in Inequality
According to a report by the Macroeconomics Department of Plan and Budget Organization, the reimposition of international sanctions in the early 2010s resulted in a 10-20% decline in the welfare of all income deciles in Iran despite the continuation of the government’s direct subsidy programs.
The preliminary nuclear agreement in the Iranian year ending March 2014, the start of negotiations with world powers and the ease of international transactions benefited households in different income deciles, but the real improvement in their spending and welfare was realized in 2016 as sanctions were officially lifted.
The welfare of families living in urban areas improved by 5-10% during the two-year period after the implementation of the Joint Comprehensive Plan of Action. The sharpest decline has been recorded for food in the households’ consumer basket over the past decade.
Since the year ending March 2017 and the implementation of Health Reform Plan, health spending began to rise exponentially, particularly in rural areas.
The Health Reform Plan was introduced in 2014 to fulfill President Hassan Rouhani’s election campaign promise of healthcare for all Iranians by 2018 under a nationwide health insurance program.
Government payments, including the payment of cash subsidies and health insurance premiums, have decreased steadily and quickly from the year ending March 2012. As a result, payments at constant prices in the year ending March 2019 reached one-third of what it was in the year ending March 2012.
When constant prices are used, per capita income dropped by 11% over the period. A 15% decline was recorded in per capita income during a single year: 2018-19.
Government payments, including cash subsidies, account for 26% of total income of households in the first income decile (those with the lowest income), while it constitutes less than 4% of total revenues of families in the 10th decile (those with the highest income).
Miscellaneous salaries and revenues, which are usually exempt from tax, account for 35% and 41% of the income of high-income families, respectively.
The removal of sanctions, together with economic growth, during March 2016-18 resulted in a considerable improvement in households’ welfare. Job creation and economic growth were apparently the main causes of the decline in wealth inequality and poverty, the report read.
