The Distributional Consequences of Economic Growth and Public Spending Programs in Iran

Poverty rates in Iran declined robustly during 1989-2007, following sharp rises during 1979-1988. Though this important phenomenon has been noted by many scholars, its causes have not been analyzed in rigorous ways. We ask: What mechanisms helped reduce poverty rates during 1989-2007? Was it economic growth? Was growth equalizing or unequalizing? How much did redistribution and social protection mechanisms contribute? Did government spending and subsidies matter? Did social protection organizations matter? Which one and in which way?
This paper is an attempt to compare the overall distributional effects of growth, government spending, and three social protection institutions in Iran—namely, activities of three social protection organizations: Imam Khomeini Relief Foundation (IKRF), Social Welfare Organization (SWO), and Social Security Organization (SSO). The analysis is based on annual household surveys along with province-level public spending and welfare program activity. The paper uses quantile regression to identify the general equilibrium effects of the factors that shape household expenditure distribution in Iran.
We find that growth has had highly unequalizing effects on expenditure distribution in Iran. But, the province-level government spending and the activities of SWO and IKRF and unemployment insurance program of SSO along with economy-wide factors, such as food subsidy policies during 1998-2006, have served as important counter-balances. The pension and health insurance programs offered by the SSO have improved the livelihood of a wide range of households, other than the top decile.