The Gini Index stood at 0.3938 in the last Iranian year (March 2021-22), which indicates a 0.0068 decline compared with the year before, the Statistical Center of Iran said in a new report.
The center put the index for urban and rural households at 0.3757 and 0.3594 respectively.
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.
The report also shows the proportion of top 20% spenders (richest) and bottom 20% (poorest) from the total population stood at 46.7% and 5.88%.
It noted that the proportion of the number of the top 10%, 20% and 40% spenders over bottom 10%, 20% and 40% stood at 13.46, 7.94 and 4.24 respectively.
Palma, Theil and Atkinson indices were reported to be 1.87, 0.2602 and 0.2312 respectively.
The Palma ratio is the share of all income received by the 10% people with the highest disposable income divided by the share of all income received by the 40% people with the lowest disposable income.
The Theil index measures an entropic "distance" the population is away from the "ideal" egalitarian state of everyone having the same income.
The Atkinson index is a measure of income inequality developed by British economist Anthony Barnes Atkinson. The measure is useful in determining which end of the distribution contributed most to the observed inequality.
Urban Areas
In urban areas, the proportion of the top 20% spenders (richest) and bottom 20% (poorest) from the total population were at 45.34% and 6.46% respectively.
The proportion of the number of top 10%, 20% and 40% spenders over the bottom 10%, 20% and 40% stood at 11.54, 7.02 and 3.91 respectively.
Palma, Theil and Atkinson indices for urban areas were at 1.7, 0.2364 and 0.2100 respectively.
In urban areas, the lowest and highest Gini Index were registered for Kerman Province with 0.2729 and Sistan-Baluchestan Province with 0.4929 respectively.
Rural Areas
In rural areas, the proportion of top 20% spenders (richest) and bottom 20% (poorest) from the total population were at 43.96% and 6.74% respectively.
The proportion of the number of top 10%, 20% and 40% spenders over the bottom 10%, 20% and 40% stood at 10.76, 6.52 and 3.64 respectively.
Palma, Theil and Atkinson indices for rural areas were at 1.57, 0.2164 and 0.1942 respectively.
In rural areas, the lowest and highest Gini Index were registered for Bushehr Province with 0.2593 and South Khorasan Province with 0.3633 respectively.
Post-Revolution Review
Iran’s Gini index registered its highest level in the years ending March 1975 and 1976.
According to analysts, the increase in income inequality was one of the main reasons behind the Islamic Revolution of 1979.
The Iran–Iraq War (1980-88), direct subsidy payments to individuals in the form of cash payments and sanctions have affected the dynamics of wealth inequality in Iran over the years after the revolution.
Using the Statistical Center of Iran data on the Gini index, the Persian-language daily Iran has classified 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.
From the Iranian year ending March 1985 to March 1989, the country was involved in the Iraq-imposed war. The then government instituted 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 maintained a downtrend: 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.
With the end of war came the growing income inequality. Those individuals who had lost their source of income during the years of the war reclaimed their livelihoods and the country’s revenues 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.
The years between March 1998 and March 2005 saw the return of relatively 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.
The Gini index fell below 0.40 between March 2006 and March 2013, chiefly due to the implementation of targeted subsidies policy that increased the income of all deciles equally. The Targeted Subsidies Law of 2010 had authorized the reduction of food and energy subsidies, and instead allowed the payment of 455,000 rials to each and every Iranian on a monthly basis. 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.
The years between March 2014 and March 2020 witnessed the fluctuations of income redistribution indexes. The Gini index hit its 36-year low in the year ending March 2014, as it settled at 0.3650 in that year. started declining 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 redistribution of wealth in the 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 made the country’s Gini index to drop below 0.40.
Share of Sanctions in Inequality
According to a report by the Macroeconomics Department of the Plan and Budget Organization, the imposition 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 nuclear agreement in the Iranian year ending March 2014 and the start of negotiations with world powers and ease of some 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, spending on health began to rise exponentially, particularly in rural areas.
The Health Reform Plan was introduced in 2014 to fulfill then 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: March 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, between March 2016-18 resulted in a considerable improvement in households’ welfare. Job creation and economic growth were apparently the main causes of decline in wealth inequality and poverty then, the report read.
